Stock Market Update--What's Ahead For The Second Half
The stock market has seen a lackluster six months. Since February, the Standard & Poorís 500 gain of 4 percent has slipped away to end-up by July 15 at about the same place it started in January. As of mid-July, the Dow Jones was down 2 percent and the Nasdaq off 3 percent. Retail and auto sales for June failed to sparkle, with sales growth slowing for the former and decreasing in the automobile sector. And, if these soft economic reports werenít enough, investors got further bad news in July from unexpected earning shortfalls including Merrill Lynch - the Wall Street giant blamed inactivity from institutional investors for the firmís decline in business, citing that many "chose to remain on the sidelines amid uncertain markets for debt and equity." On the heels of this news, several technology companies issued earnings warnings, citing weak software and hardware sales at the end of the second quarter.
Not surprisingly, Wall Street gurus and individual investors alike are wondering if we are entering a period of economic slowdown. Some portfolio managers remain undaunted by the recent sluggish economic indicators, but others are less optimistic.
Hereís what the bulls expect to see over the second half of 2004. First of all, the bulls note that weíve experienced a period of economic expansion and record earnings growth, which has failed to be fully reflected in the moribund stock market. Uncertainty about the presidential race, worry about heightened security alerts, and the conflict in Iraq together with disappointing job creation figures-all these issues have kept investors on the sidelines. The market hates uncertainty and right now there is plenty both at home and on the geopolitical front.
The bulls believe that a market rally will occur in the next few months, and that we will see the market break through its current trading range. The most bullish believe that investors will finally pay attention to the rebound in corporate profits and will take advantage of the marketís recent pull back. Those who expect a bull market believe we may see a 5 to 10 percent hike in the second half of the year.
Where do the bulls see most opportunity? Many suggest that the energy services sector is worth investorsí attention. They anticipate crude oil prices remaining above the $30 per barrel mark and expect demand for natural gas to outstrip supply. Some still see strong upside in the technology sector despite recent earnings disappointments from heavy hitters like Intel, and they see opportunities to buy quality stocks at attractive prices.
Some analysts have a much more cautious approach to the market. The naysayers are almost all concerned with the upcoming elections and the increased possibility of terrorist attacks, as Election Day gets closer. They expect the market to be stuck in its current lackluster trading range throughout summer and through autumnís election campaigning. Many urge investors to stay alert and be ready to move because the market probably will react suddenly, if the election outcome clarifies, for some reason, over the next few months.
Other bears - citing sluggish long-term job creation--are highly skeptical about the validity of the recent recovery. They counsel investors to ignore the ebullient claims of politicians, and to invest in companies in sectors - like energy and materials-- that might benefit from inflationary pressures. They also suggest investors adjust their expectations and recognize that in a trading-range market like todayís - when the market isnít really going anywhere--investors are unlikely to make a killing. Others fear that corporate growth will slow later this year as the Federal Reserve raises interest rates.
Whatever their stance, most Wall Street pundits agree that investors can expect a few bumps in the road ahead. The experts recommend that investors stay in the game but keep something in reserve in order to respond to fast-breaking opportunities.