Posted on 06/07/2002 6:42:01 AM PDT by lds23
NEW YORK - U.S. gross domestic product increased by 5.7% in the first quarter of 2002, the largest rise in almost two years, and overall corporate profits and employment are at all-time highs. On the other hand, it looks like L. Dennis Kozlowski cheated on his sales tax. Fearing Kozlowski and accounting woes from all over, the stock markets are down, down, down.
To be sure, not all the economic news is good. The rate of unemployment, according to figures released by the Bureau of Labor Statistics this morning, dropped slightly, to 5.8%, and real income levels have been fairly stagnant. But fear has a grip on the markets rather than greed, fear's most fearsome competitor on Wall Street.
Yesterday, the S&P 500 and the Nasdaq composite fell to their lowest levels since October. Meanwhile, the Dow Jones Industrial Average continued to slouch at a four-month low. The Dow slipped by 172 points, or 1.8%, to 9,624.64, with Home Depot , Merck and SBC Communications leading the losers. Only three Dow stocks finished higher: AT&T, Microsoft and McDonald's.
Positive news about initial jobless claims--they fell by 32,000 to a 13-month low--had little impact. Merrill Lynch's downgrade of semiconductor stocks, including Intel, which issued an earnings warning overnight, was far more influential.
"Really the economic reports are pretty encouraging," says Phil Dow, chief market strategist at Dain Rausher. "Maybe the pace of GDP growth is slowing a little bit, but I don't think there's a question that the economy is recovering. People are maybe losing sight."
Of course, people losing sight on Wall Street is the general rule. Sometimes they drive fast looking past the hairpin turns and gaping potholes. Then there are times, like now, when people drive ahead slowly with both eyes glued to the rearview mirror.
"There is a weight of uncertainty about terror and everything else," Dow says. The possibility of a bomb is, of course, something few people--if anyone--are prepared to gauge. Perhaps making homeland security a Cabinet-level department will help. But can anyone say another terror attack is more likely now than it was four months ago or six months ago?
There is also the still-unfolding news about accounting scandals and crime in the boardroom weighing down the markets, with Tyco being the latest item in the police blotter.
"A lot of investors say, 'I can't trust the financial information I see,'" Dow says, and that is a cause for concern. But on the other hand, revelations of scandal can be seen as positive. When Tyco and were flying high is when the funny business was going on. Now that we know something closer to the truth, the shares of those companies are down or out. Would investors prefer not to know?
The real reason markets are down--real as in actual, not as in based on reality--is that investors who once leaned on hope are now dipped in experience. "We tend to fight the last battle. If I've invested in the past couple of years, my experience is likely negative or neutral," Dow says.
But as more solid numbers come out, the market will begin to go up slowly--and then psychology will change and it will be OK to buy, Dow predicts.
As it happens, not many will know it. But after the fact, a lot of people on Wall Street are sure to predict it.
If he were head of an REIT, he'd tell you to buy real estate.
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