To: Theory who wrote (22288 ) 5/6/1999 6:24:00 PM From: Sir Francis Drake Read Replies (1) | Respond to
<<Why the current drop?>> ... several reasons. Most to do with the general market. There's been a shift away from the former leaders, big cap blue chips, particularly in tech - and into cyclicals. This is a stupid situation, mostly engineered by money mangers at large institutions. The concern is high p/e. They figure that growth around the world is taking off. That will put greater demand on commodities, cyclicals and economically sensitive stocks, which have been depressed through most of the bull market. Money used to flow to the only "safe" and profitable companies - big cap growth stocks, which as a result tacked on high p/e. This resulted in a split market with a few issues going ever higher, and the broad market lagging. Now with the cyclicals ready to take off, all of a sudden "value" is discovered in low p/e secondary and tertiary cyclicals. This "value" philosophy has spilled over into the buying of small caps which were in an outright bear market until March of this year. Where was the money going to come from? That's right - from the high p/e former leaders. So now you have the dynamic of institutions selling "overvalued" stocks (like MSFT), not just because they are overvalued, but because they need to raise money to buy the "value" stocks. After a few days of this selling pressure and rotation, people sat up and took notice. Nobody wants to be caught holding an "overvalued" stock that's under selling pressure - so they sell, and additionally, the holders frequently have huge profits in them (from years of a bull market leadership) - so people cash in their profits, before they diminish. That's even more selling pressure.
