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Nasdaq trading on Thursday was mostly technical in nature, with speculators feeling that the market was overbought on a short-term technical basis, but unwilling to commit to shorting the market as long as there was a positive tone going into the Q3 GDP report today and the election on Tuesday. Traders fretted about the Nasdaq 1,970 level of resistance until the final few minutes of trading.
The 5.52-point Nasdaq gain was quite modest, but noteworthy since significant profit-taking could have been expected after the recent run-up, coupled with the resistance at the 1,970 level.
Nasdaq trading volume was moderate (1.83 billion shares), but breadth was slightly negative, suggesting a bias towards buying larger-cap stocks and selling the smaller-cap stocks.
People will respond to the release of the advance Q3 GDP report due out today. Unfortunately, it is is now ancient history and people are much more interested in what's happening since Q3 ended in September.
The weekly Unemployment Claims registered a moderate rise, but nothing significant enough to change the picture of the overall economy. Claims (both initial and continuing) are reasonably low, but not as low as would be expected if the economy was completely recovered.
The Conference Board Help Wanted Index for September registered a slight decline in help-wanted advertising, slightly below the level of a year ago. This was a modestly negative report, and still suggests that the labor market continues to be rather lackluster. The Conference Board refers to their Help-Wanted Advertising Index as “a key barometer of America’s job market”. They note that “The labor market remains flat and has clearly started to weigh negatively on consumer confidence. Want ad volume was basically flat all spring and summer. Perhaps some of the 1-point drop in September can be associated with the repeated hurricane strikes in the south. But the bigger issue has been weakness in the Midwest all year, now joined by a weakening in the Upper Plains states as well. Meanwhile, initial unemployment claims nationally have been essentially unchanged from March through mid-October. With the Leading Economic Index declining for four straight months, the labor market could even be losing momentum going into the final months of 2004, and not just in the Midwest and Upper Plains.” I would note that in today’s job market and with the internet, companies simply don’t have to do as much newspaper advertising.
After the close: The weekly Fed Money Stock Measures report showed that the money supply (M2, which includes retail money market mutual funds) for the week ended October 18 rose sharply (by $22.7 billion to $6.3497 trillion) and is 4.62% above a year ago. There is no shortage of money, nor any inflationary excess.
After the close: The AMG Data Services Weekly Mutual Fund Flows report for the week ended Wednesday, October 27, registered a net inflow of $1.078 billion to equity mutual funds, with a net inflow of $338 million to domestic equity funds. That was a modestly positive report, but there is a lot of volatility.
Wednesday: The weekly Mortgage Bankers Association (MBA) Mortgage Application Survey for the week ending October 22 registered a moderately sharp decline in applications (-0.8%), with a very sharp decline in applications to purchase (-4.4%) but a very sharp rise in refinancing (+3.6%). This was a mixed report, but there does tend to be a lot of volatility. The bottom line is that demand for buying homes is still reasonably strong and continues to bewilder and befuddle even the best of ‘professional’ economists.
The AAA Daily Fuel Gauge Report showed a moderate rise of +0.5 cents since Tuesday (from 2.027 to 2.032), a third consecutive day of gains. Regular unleaded gasoline is now 14.5 cents above the level of a month ago, but still 2.2 cents below its May peak.
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The correction in crude oil futures continues. A surprise interest rate hike in China was blamed for the decline, but that's nonsense. The correction was long overdue, and all the other talk about China or whatever was just mindless chatter designed to talk down the near-term prospects for oil.
[10/28/04] The fed funds futures market suggests a quarter-point hike (to 2.00%) at the November 10 FOMC meeting, no hike at the December 14 FOMC meeting, a quarter-point hike (to 2.25%) at the February 1/2 FOMC meeting, no hike at the March 22 FOMC meeting, a quarter-point hike (to 2.50%) at the May 3 FOMC meeting, and no hike at the June 29/30 FOMC meeting. Fed funds futures are at best accurate no more than six weeks out, so those longer-term moves are purely speculative, at best.
[6/18/04] The Fed is not likely to quickly raise interest rates all the way to a so-called ‘neutral’ stance (somewhere in the 3-4.5% range) over the coming year, primarily because the recovery is not yet complete (e.g., look at the lingering level of unemployment and the state of the airline, telecom, and manufacturing sectors). Rather, the Fed will simply remove the ‘excess’ stimulus (call it the ‘deflation hedge’) so that only a moderate level of ‘accommodation’ remains. In other words, despite the relatively rapid pace of expected hikes over the coming year, the initial ‘campaign’ will likely end at a target fed funds rate of 1.75% to 2.75% with the remaining rise to the fully ‘neutral’ stance coming only very gradually over the next two to three years as the remaining weakness in the economy gradually dissipates. Also, expect interest rates to be below the full ‘neutral’ level until the lingering geopolitical uncertainty related to the war on terrorism and the situation in Iraq and anxiety over the potential for oil supply disruptions dissipates. And finally, since high energy prices act as a ‘tax’, the Fed may feel pressured to keep interest rates a little lower than otherwise expected to compensate for the drag of that tax if it persists for more than a few months.
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[10/21/04] I attended the VentureOne Exchange venture capital conference up in Boston on Tuesday, October 19 and Wednesday, October 20. Click here for my write-up of last year's conference.
[10/21/04] I'll have a write-up on the conference soon, but the simple summary is that venture investment is making a painfully slow comeback. It is coming back, but at a very slow pace. Even worse, companies are raising less money and hence hiring less (or hiring offshore) and spending less. The net effect is that current venture investment is only a very modest boost for the economy, and a much smaller boost than it could be.
[10/11/04] For some background information on venture capital, click here.
Since my consulting income has picked up a bit recently, I've upped my monthly investment, by a factor of five, as of my November investment, due to occur on Tuesday, November 2.
Cingular just completed the acquisition of AT&T Wireless (AWE), so AWE was "removed" from the Tech Sector Spider (which includes both information technology and the telecoms). I've been unable to determine how that removal affects the value of a share of the Tech Sector Spider (XLK). Cingular is certainly large enough to warrant inclusion in the S&P 500 and hence the telecom sector of the S&P 500, but Cingular is a joint venture of BellSouth (BLS) and SBC Communications (SBC), and not a publicly traded company. Both BellSouth and SBC, as well as AT&T (T) from whom AT&T Wireless was purchased for $41 billion in cash, are in the S&P 500 and the Tech Sector Spider, but this paper shuffling of assets doesn't necessarily translate into an increase in the share prices of any of those stocks. My suspicion is that XLK shareholders basically get screwed in such a situation. We also got screwed when S&P removed Amazon (AMZN) from the S&P 500 (Yahoo (YHOO) is still in there) and further screwed when eBay (EBAY) was added to the S&P 500, but to the consumer discretionary sector rather than information technology. We'll probably also get screwed again when Google (GOOG) eventually gets added to the S&P.
You might ask why I both with the Tech Sector Spider with all this issues when I can buy the Nasdaq-100 "Qubes" (QQQ) and get all the Nasdaq large-cap techs and more. I continually debate that question myself. The problem is that you then get a lot more non-tech stocks as well. On the other hand, XLK drags in the non-Nasdaq telecoms, but they're a relatively small portion. It's really a coin-flip to choose between XLK and QQQ. I could also choose any number of iShares ETF's that target specific sectors of technology or proprietary tech stock indexes, and possibly even focus on the internet exclusively.
[6/29/04] As an experiment, I have set up a new account with ShareBuilder and will be making a modest dollar-cost averaging investment each month. At a cost of $4 per month I will be buying a fixed dollar amount of the S&P 500 Tech Sector ‘Spider’ (XLK). The money for the investment will be automatically taken from my bank checking account. My purchases will be made on the first Tuesday of each month, beginning on July 6, 2004.
[10/28/04] Short-term (10-day): Very volatile, but moderately bullish.
[10/28/04] Short-term (1-month): Somewhat volatile, but moderately bullish.
[10/15/04] Short-term (2-months): Moderately bullish.
[10/22/04] Medium-term (3-months): Very volatile, but moderately bullish.
[10/29/04] Medium-term (6-months): Very Volatile, and modestly bearish.
[10/15/04] Medium-term (9-months): Very Volatile, and moderately bearish.
[10/28/04] Longer-term (1-year): Very Volatile, but very modestly bullish.
[10/15/04] Longer-term (2-years): Moderately strongly bullish.
[10/15/04] Longer-term (3-years): Very volatile, but modestly bullish.
[10/15/04] Longer-term (4-years): Very volatile, but moderately bearish.
[10/15/04] Longer-term (5-year): Very volatile, but modestly bearish.
[10/15/04] Longer-term (6-year): Very volatile, but modestly bullish.
[10/15/04] Longer-term (7-year): Very volatile, but slightly bullish.
[10/15/04] Longer-term (8-year, 9-year, 10-year): Very volatile, but modestly bullish.
[10/29/04] Nasdaq set a new near-term intra-day peak of 1,980.36 on Thursday, October 28, 2004.
[10/29/04] Nasdaq set a new near-term closing peak of 1,975.74 on Thursday, October 28, 2004.
[10/15/04] Overall outlook: confused and volatile, but with a modest upwards trend. The economy is neither "booming" nor "busting", but making modestly positive progress at restructuring problematic industries.
[8/23/04] Clearly the elevated price of crude oil has to have some negative impact on the economy, but the big question is how much impact. Overall, the economy is less sensitive to the price of oil and “oil shocks” than in past decades, but some sectors (such as airlines and chemical companies) are significantly more sensitive, whereas most sectors are only modestly sensitive. The current price escalation in fact has not been caused by any supply shortage or any excess demand by end users, but is merely due to a dramatic level of speculation in crude futures. The bad news is that we don’t know how much longer that speculative ‘bubble’ will continue to grow. The good news is that oil at these prices is not as attractive an ‘investment’, so the speculation will be increasingly susceptible to profit-taking and renewed interest in short-selling. Besides, if oil really were expected to rise dramatically from here, we’d see it in the price of futures in coming years, and we don’t. In fact, futures ‘predict’ that the price of crude will decline in coming years. In any case, elevated oil prices will be a moderate drag on the economy, but not so much as to spur accelerating inflation or to trigger a recession. Maybe it will trim a quarter to half-point off GDP, but that’s about it. Besides, people and businesses will adjust their lives and operations to further reduce their dependence on expensive oil. And finally, high-efficiency hybrid-electric vehicles are beginning to debut and anxiety over the price of gasoline will simply accelerate the development and introduction of such innovative products, which will dramatically moderate the demand for oil a few years from now.
[8/7/04] The latest economic data continues to support the thesis that the U.S. economy is solidly into a gradual, zigzag, underappreciated, stealth recovery. It will be another two years before the economy is fully back on track. Unemployment will decline only gradually. The bankruptcy rate will decline off recent highs, but remain at a fairly high level for another two years. There are still quite a number of businesses (and entire sectors) that will need to be restructured over the next two years as well.
[7/3/04] A major uncertainty is the state of the economy in Q4 and the first half of 2005. We currently have enough momentum to do well in the current quarter (Q3), but nobody really has even a halfway decent handle on how that momentum will play out towards the end of the year and into next year. We have the looming specter of rising interest rates, but the Fed would certainly back off if the economy started to sputter. The bottom line is that the economy is likely to be doing “okay”, but probably not a lot better than “okay”, in Q4 and early 2005.
[7/6/04] Some people are protesting that company profits could suffer as companies run out of costs that they can cut. That’s complete nonsense. First, companies will never run out of costs to cut. But more importantly, one of the factors that has been holding back growth of business revenues (and profits) over the past three years is the fact that companies have been dramatically cutting costs and the cutting of a cost for one company is the cutting of the revenue of one or more other companies. That cost-cutting binge was exerting a distinct headwind on businesses, but that headwind will in fact fall off as the cost-cutting moderates. And as revenues begin to grow more strongly, companies will begin to reverse the process and both spend more and hire more workers. Continued technological advances will spur further cost-cutting, but on a more moderate basis.
[3/13/04] A major uncertainty that will begin to loom over the economy and the financial markets is the impact of the outcome of the Presidential election. Although the political rhetoric can get very intense, the fairly even split in Congress makes it very unlikely that either party in the White House will be able to dramatically change federal economic policy significantly over the next four years. Besides, both parties are interested in reducing the federal budget deficit. The proposals from both parties will be hotly debated, but I can’t see that either side is either a clear winner or a clear loser for the economy and the markets.
[12/29/03] The two key factors driving the pace of the recovery will continue to be the ongoing process of shutting down or restructuring ‘problem’ businesses and the pace of the formation of new businesses which will create new jobs.
[12/29/03] A big wildcard in 2004 will be the possibility of a new wave of corporate cost-cutting as companies burn through the easy part of revenue growth and are forced to revert to cost-cutting to keep up earnings growth. The problem is that one company’s cost is another company’s revenue or an employee’s income, so more cost-cutting can boost earnings in the near-term but risk putting intense downwards pressure on business spending and employment. This cost-cutting process will moderate once companies begin to build up a deep enough backlog of unfilled orders so that they can keep revenue growth at a consistently strong pace to keep earnings growth up. The economy will survive this process, but the zigging and zagging of the pace of the recovery will continue.
[9/1/03] Our Tech Stock ‘Safe’ Signal is still stuck at 0.00 (no safety) since none of the big tech companies are even hinting that they are seeing any significant improvement in demand. There does seem to be some sense of stabilization and a modest hint of improvement, but no clear and decisive indication of a dependable ramp up in revenues and earnings.
[5/25/02] DISCLAIMER: I cannot and do not offer any recommendations of stocks to buy or sell. I may on occasion discuss companies that I am considering or myself have bought or sold, but the reader must do their own research before making their own purchase or sale decision. It is never a good idea to buy a stock just because someone else tells you to or even merely mentions a company in a favorable light.
Jack Krupansky -- The Unrepentant Optimist (Click here for Jack's Bio)
Updated: October 28, 2004 10:14:16 PM -0400
Copyright © 2004 John W. Krupansky d/b/a Base Technology