Summer Doldrums To Snap Bulls Neck?
By Brady Willett
As the dreary days of summer linger there is an excitement in the air. No, this excitement is
not of snow flurries and fears of heating oil shortages. Rather, the excitement centers upon the equity markets: the much-maligned bull has stopped running, but is the bull merely
resting, or is it dead?
The markets typically trade in unspectacular fashion during the summer weeks leading up
to September. However, this time things appear different: following a deluge of earnings releases the markets have found themselves adrift, and holding on to current levels. No
longer is it assumed that a late 2001 rebound is inevitable, rather that one might be remotely possible. As such, the question that begs to be asked is what if the bottoms do not hold?
"Investors inability to view earnings reports as a half full glass this time, as it had done
with the terrible 4Q01 and 1Q01 earnings reports, may be the biggest indicator that the earnings recovery may be much further out than many had anticipated and that earnings
may be headed for much worse declines than many had anticipated…earnings estimates for 3Q01, 4Q01, and 1Q02 continue in free fall." Chuck Hill, First Call.
"Investors are reacting rationally. The reality is that the recovery is further out than had been expected."
Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum. CBS MarketWatch
"We've seen a lot of S&P 500-type companies realizing they really can't predict where business is going to be in three to six months." Robert Arancio, head of Nasdaq trading at Lehman Brothers. Reuters
No matter how optimistic some are concerning an imminent economic/stock market
rebound, few will debate the fact that if stock prices break severely lower any hopes of a rebound may all but vanish. This is, of course, the biggest and baddest bull the American
equity markets have ever known.
The last time I checked a few trillion dollars in Nasdaq capitalization had quickly gone
awash, however, the Dow had not relinquished nearly as much. As such, if the worst correction over the last two decades on the Dow is a paltry 30% (the low of 9106 from a
peak of 11,908) then perhaps the 'new paradigm' of investing will never die. Perhaps stock prices can always avoid severe drops back to 'normal' trading levels because no matter
how poorly the economic situation becomes investors can always look ahead? In contrast these speculations: perhaps investors are just beginning to grow impatient.
One thing may be for certain: with the bottoms within striking distance the 'summer doldrums' are unlikely to be dull this year.
Brady Willett
July 29, 2001
http://www.fallstreet.com
