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Strategies & Market Trends : 50% Gains Investing -- Ignore unavailable to you. Want to Upgrade?

To: james h. snyder who wrote (1645)	11/1/1998 8:06:00 AM
From: Dale Baker	Read Replies (1) \| Respond to of 118717

I am also following the Market Gems thread. Let me know if you think your subscription is worth the price. Here is an interesting article from the WSJ. While I still have substantial short positions, I may back off if this upswing continues. MARKET INSIDER THE VANISHING RECESSION November 2, 1998 FOR WEEKS NOW, pundits have been debating whether October's stock rally is a head fake by a market intent on going lower, or the real thing. The Commerce Department gave us reason to think it's the latter Friday when it announced that gross domestic product moved ahead a brisk 3.3% for the third quarter, beating second- quarter results by a wide margin. Wall Street was clearly taken by surprise. The Dow Jones Industrial average, which was already up 11.3% this month, spiked another 160 points in the first two hours of trading before closing the day up 97.07 points. Both the Russell 2000 and the Nasdaq Composite rallied. What should you make of this news? We wouldn't blame you for finding the GDP numbers a bit confusing. After all, for the past two months it seems much of the economic data we've seen has been negative. Consumer sentiment has soured for four straight months. Job growth in September was anemic. Weekly retail sales have softened considerably in October. Even the pros forecast a moderately weak quarter in which GDP would register just 2.0% growth, in line with the second quarter's 1.8%, but down dramatically from the first quarter when growth spiked 5.5%. Corporate earnings only seemed to back up this view: Third-quarter earnings for S&P 500 companies are on track to decline year-to-year for the first time since the third quarter of 1991. But earnings reports, while generally dismal, have provided some evidence that perhaps the economy wasn't as weak as the pessimists thought. The tech sectors that led the market down last fall, namely the semiconductor stocks that were creamed in last year's Asia meltdown, are starting to perk up again. Semiconductor companies beat analysts' earnings estimates by 20% this quarter, while software and communications equipment came in 10% or more over estimates. While it's true many sectors are still in the tank -- commodity sellers like oil, chemicals and metals stocks and even some capital equipment makers continue to reel -- those groups are less important to the health of our service-based economy. What's more, another important economic number -- durable goods orders -- also came in better than expected this week, showing that manufacturing may be ticking up as well. After Friday's news, investors have to seriously consider whether Alan Greenspan has turned the neat trick of engineering yet another soft landing for the economy. If that's so, then investors will want to recommit themselves to stock investing, using any dip in prices to scour the markets for bargains. Why is that? It's our investing philosophy that market corrections during periods of economic expansion are great buying opportunities. You only have to look back at 1987 to confirm that view. What's more, the fundamental environment continues to be positive for stocks; interest rates and inflation are both close to historic lows. (Today's GDP report also included an inflation update, which puts domestic price increases at just 0.5% for the quarter.) Mutual fund flow data indicates, though, that investors haven't been taking our advice. Instead of buying on the (very big) dip in August, investors sold, possibly at the market's bottom. That's a pretty typical misstep, but in our view, an even worse one is failing to take advantage of the market's downturns to spot value. Granted, GDP is just one number amid a raft of economic data. And next week's economic calendar is packed with important data to watch that will give even more clues to the state of the economy. We'll be tracking all of those announcements next week. But, in the meantime, the Commerce Department's report should be taken as good news -- and a bullish sign for stock investors. -- By Gerri Willis