INVESTOR CONFIDENCE REMAINS STRONG; TECHS’ PULLBACK WORRIES SOME
Last month saw another month of solid performance on Wall Street. While some cautious pundits question how much longer the current rally can last, individual investors continue to rush into the market in record numbers. According to Charles Schwab, trading was up 26 percent in January over December 2003 and by a whopping 62 percent from this time last year. Like the Energizer bunny, the Stock Market’s upturn keeps going and going-with only minor gyrations to disturb its upward trend. Experts note that we are in one of the longest uninterrupted upturns since 1928. And, with the S&P 500 stock-index logging a 34 percent increase over a 12-month period, recent indicators show no signs of a downturn.
Some investors may complain that in the current climate, there is not a lot of upside potential left, but trading statistics suggest that many are still trying to get into the momentum of the market. Many Wall Street experts predict a bullish year ahead on the Big Board-- minor corrections not withstanding.
The picture is not quite so rosy for technology investors who saw a 5.5 percent decline in the Nasdaq Index in the four-week period since its January high of 2,153.83. Some analysts believe the decline should be put in context, noting that Nasdaq had been the biggest gainer in 2003 and therefore any correction would be likely to register a correspondingly greater impact than the minor corrections logged by the Dow Jones Industrials and the S&P 500. Others point out that technology companies benefited disproportionably from foreign exchange movements and they believe that recent moves to halt the dollar’s decline are now being reflected in these tech companies’ balance sheets.
Looking ahead, Nasdaq’s most bullish commentators dismiss the possibility of a major downward slide, noting that the top 100 market cap stocks are more diverse than they were in the late ’90s. More cautious analysts note that technology stocks still remain the majority-6 out of 10 on the Nasdaq 100-and that the possibility of further erratic performance is possible.
Mergers and Acquisitions
The market’s momentum has reanimated the mergers and acquisitions community, which had been in deep hibernation for several years. Over the last few weeks, Cingular’s $41 billion bid for AT&T Wireless and Comcast’s hostile bid for Walt Disney have grabbed the headlines.
Is this an area where the individual investor can look for profit potential? Unless you already have a stock position in a target company, conventional wisdom suggests you leave speculation on take-overs to the specialists better equipped to marshal legal advice and research data quickly and to handle the financial risk. Bear in mind that many mergers fail to work out and, even when they are successful, that the shares of the bidding company usually decline short-term due to share dilution or to the hit to the balance sheet that many companies take.
Many pundits predict a good year ahead. However, some Wall Street experts see storm clouds hovering. They remain concerned about the impact of future interest rates hikes on the stock market. Despite Federal Reserve Chairman Greenspan’s latest reassurance that the Fed would hold off on raising rates-in the short term-- some believe that Greenspan’s prediction of 5 percent economic growth this year is a very strong indicator that higher interest rates are on the horizon. If this comes to pass, some believe that the higher rates-even modest increases-will trigger a market decline. In this scenario, they believe energy and consumer staples will fare best and that financial services and companies in the industrial material sector will take a beating.