Stock Market News for September 2004

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Stock Market Update-Dog Days Of August Presage Continuing Lethargy
The first half of August saw a general slump in the market thanks to higher oil prices, discouraging news on job creation, and continued terrorism jitters. The S&P 500 hit a new low of 1062 on August 6-a figure below the 1076 cited by technical analysts as a critical number for maintaining bottom support. Towards month-end, a substantial retreat in oil prices failed to prod investors into positive action and trading remained listless. Despite the resumption of oil exports from Iraq by month-end and diminishing worries about supply shortfalls, investors remained on the sidelines --as they had been all month-- and trading remained light. In the same vein, the National Association of Realtors’ report on July sales of existing homes which beat forecasters’ predictions registering sales of 6.72 units, a decline of 2.9 percent. These better-than-expected numbers failed to generate any momentum in the market.

Are we experiencing the dog days of August with lethargy prevailing prior to a Labor Day wake-up, or should investors buckle their seats for further storms ahead?

Many of Wall Street’s experienced commentators believe that the stormy outlook that began in June will be with us for a while yet. They believe that the market will remain focused on oil prices and that, despite falling oil prices at month-end, investors will remain anxious about future price hikes. In the absence of any major economic news, the stock market continues to key off oil prices fearing that another price increase could increase business costs while reducing consumer spending-bad news for third- and fourth-quarter earning forecasts. Other prognosticators believe that investors were holding off prior to the launch of the Republican National Convention, and that others were waiting to see what the employment numbers for August looked like.

Many commentators note that the last bear market has left its mark on investors, who are responding with marked caution today. They note that the market is much more sensitive to bad news than good, and that there is a pervasive air of pessimism regarding economic growth. Others feel that despite falling valuations--the S&P 500 is now trading at a lower P/E ratio than it was earlier in the year --that many stocks are still over-priced. For this reason, many large brokerage concerns are counseling caution, citing pricing concerns and trends that suggest that earning estimates are slipping.

Where Opportunities Exist
Many notable Wall Street pundits have scaled back their expectations for the remainder of the year, but opportunities still exist. Analysts note that, in a range-bound market like the current one, investors must stay clued in to monitor trends and be in a position to act quickly in order to get back into the market at the appropriate time.

Where do pundits see opportunities? It is not surprising to learn that many are on the lookout for corporations with declining share prices and rising earnings predictions. That said...where’s a good place to look? Some experts suggest considering health care leaders -particularly those in managed care and the pharmaceuticals sectors. Others are eyeing energy, materials and consumer staples-categories dubbed "inflation" beneficiaries-and believe significant opportunities may be found here.

Categories that are expected to remain stagnant or decline in today’s climate include: capital goods and any stocks that are sensitive to interest rates or to slowing economic growth.

Overall the pundits’ recommend that investors focus on quality companies, stay tuned for positive news and be ready to respond to fast-breaking opportunities.


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