Read the amazing article below - one of the Doomsberg reporters must moonlight for CNNfn. Anyone seen the API numbers yet?
Retail, tech stocks to stay hot
Strong economy boosts cyclical sectors, but surplus hurts commodities
March 30, 1999: 4:37 p.m. ET
NEW YORK (CNNfn) - With investors remaining confident in the U.S. economy, stocks from some of the more volatile sectors have been the hottest on Wall Street, and analysts say they will maintain their momentum in the second quarter.
Conversely, analysts said the traditional safe-haven stocks had a hard time keeping pace with the general market and that they expect this trend to continue, as well.
Strong economic numbers, particularly in retail and employment, helped fuel investor confidence in nondurable, cyclical market sectors at the start of 1999.
Analysts listed consumer-cyclical and technology stocks among the top-performing sectors in the first quarter.
"That's pretty good news because it means investors did not become defensive. They remain optimistic," said Hugh Johnson, chief investment officer at First Albany.
"One message we get is that the stocks people buy when they're scared -- basic materials, beverages, foods -- did not do as well. Investors are more optimistic about the economy."
Such consumer stocks as retail firms, in particular, tend to move with in step with the economy. According to the Commerce Department's most-recent figures, retail sales rose 0.9 percent in February (0.6 percent excluding automobiles), leading some economists to predict first-quarter retail sales of better than 10 percent.
And with unemployment figures at an all-time low, it all adds up to more consumer spending.
Among retail stocks, analysts pointed out the strong performances of Wal Mart Stores Inc. (WMT), which has seen its stock rise about 19 percent since the beginning of the year; Dayton Hudson Corp. (DH), which has climbed from the low 50s to nearly 70 during the quarter; and Home Depot Inc. (HD), which jumped from the low 50 range to 64.
"There's a strong forward look for consumption," said Joseph Battipaglia, chief investment strategist at Gruntal.
"The government contributed to that strength by spending more. Retail stocks had a good first quarter because with the strong economy, consumers had flexible spending power. The retail sector still has the power to outperform for the rest of the year."
Safe havens not so safe
On the flip side, analysts said, sectors that are widely considered safe havens during troubled times -- energy, commodities and utilities -- found themselves lagging behind the rest of the market.
Energy firms in particular, which had their ups and downs in the first quarter, will have a hard time outperforming the market down the road.
Despite the fact that Brent crude-oil prices have recovered from a low of less than $10 a barrel in February to about $14 a barrel currently, analysts noted that it's unlikely the energy sector will rebound in the second quarter.
"We'll probably see stocks in the energy sector be market performers rather than outperformers," Johnson said. "I think the good news [about rising oil prices] is already reflected in the stock prices."
Analysts also noted that oversupply in many commodities markets -- especially steel -- kept that sector down in the dumps in the first quarter.
"There's a surplus of supply," said Ben Hock, portfolio manager at the John Hancock Growth Fund.
"A company like Dow Chemical Co. (DOW) has good management, is a good company. It's just a matter of a loss of capacity. I'm hard pressed to tell you what is suffering from a shortage these days. A lot of these companies are going to have a hard time."
Hock noted, however, that some of the blame should be placed on the fact that too many economists measure the country's financial health based on what are rapidly becoming old-school rules.
"We continue to underestimate the move to a service-oriented economy," Hock said. "The traditional manufacturing side of the U.S. economy will continue to shrink."
Techs to remain hot
Analysts said first-quarter trends will likely continue in the second quarter because the economic outlook remains strong. And despite recent worries regarding PC demand and earnings, the technology sector should continue to show strength as an important indicator of the market's overall health.
"Technology is becoming the primary consumable," Battipaglia noted.
Hock noted that technology's biggest strength is the breadth within the sector.
"Technology has clearly been the driver of the market, and we've seen good rotation within the sector," he said.
"PC stocks, which were strong in the fourth quarter, have been a distinct laggard in the first quarter. We see cycles within technology. Telecommunications right now is the strongest side of the tech sector, companies like Lucent (LU) and Tellabs. (TLAB) To view technology as homogenous is not a good thing."
Johnson noted that while even the biggest technology firms are susceptible to the sector's volatility, those companies will continue to be among the stock market's leaders.
"Most professional investors believe the large-cap tech names are not going to go away. Companies like Lucent, Dell (DELL), Cisco (CSCO), Microsoft (MSFT), Sun Microsystems (SUNW) on an ongoing basis are going to be the leaders," Johnson said.
"I think we've seen technology take a tumble a number of times and come right back. Most professional money managers look at a technology slump as a buying opportunity."
-- by staff writer John Frederick Moore
|
