Stock Market News for July 2004

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Summer traditionally is a slow time on Wall Street, and some-but not all-of the recent torpor can be attributed to the seasonal slow-down. Uncertainties about the U.S. presidential election and the power hand-over in Iraq plus concerns about higher gas prices and rising interest rates, combined to put investors into a state of paralysis during the month of June.

Commentators note that despite these uncertainties, the economy is strong, corporations are reporting strong profits, and inflation remains relatively low. The bulls were further heartened on June 24 by a Commerce Department report showing home sales in May reached a record high. The 14.8 percent increase, which followed April’s decline of 7.9 percent, exceeded economists’ expectations.

On the down side, the Commerce Department reported that orders for durable goods declined for the second month in a row-which indicates the recovery is uneven. Month-end unemployment figures also rose, failing to meet expectations, and added a further disappointment. Analysts pointed out that during times of low volume -like we are seeing now- that economic data can have a disproportionately large impact, and that the disappointing jobless total and durable goods report were not what the market wanted to see. Many believe that geopolitical concerns and anxiety, fueled by escalating violence in Iraq and bomb blasts in Turkey, continue to dominate investors’ thinking.

Despite the general air of malaise over Wall Street, many analysts believe that the fundamental market drivers are in place. Some speculate that the market will stagnate until second-quarter earning reports are released in July. As for the long, drawn-out Fed watch, many predict that investors will continue to watch anxiously for signals prior to the Fed’s meeting on June 29-30. Apart from the long-anticipated rate hike-which some believe will be an initial 0.5 percent increase-many Wall Street experts are looking for some reassurance that the Fed will take more aggressive action to curb inflation if it becomes necessary. Other analysts believe that this "Fed phobia" is needless, and that Wall Street will take the hikes in stride. They suggest that the market has already factored in the anticipated tightening and that the pace of any future rate increases will be slow. A few analysts anticipate the federal fund rate will only increase to 1.75 percent from the current 1.00 percent by the end of this year-lower than some pundits’ previously suggested 2.00 percent.

But whatever their predictions on the outcome of the Fed’s next meeting, most experts agree that stocks are expected to languish for the next month or so. Many suggest that now is a good time for individual investors to capitalize on the general spirit of malaise and identify some buying opportunities.

The Market Hates Uncertainties
The experts urge investors to remember that the market hates uncertainties, and to not be distracted by day-to-day jitters. Though many anticipate a bumpy ride throughout the remaining summer months, they recommend that investors be mindful of the economy’s strong underpinnings and focus on the bigger picture. Long-term bullish analysts also suggest that investors look for companies with steady earnings growth, especially in the consumer staples sector. Many also favor health care -particularly pharmaceuticals.

Enjoy the summer and remember -- when school starts up again so will the pace on Wall Street. Take advantage of the current doldrums. And use your beach time to read a few corporate reports and identify opportunities to strengthen your portfolio.


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