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Wall St. still faces barriers
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December 3, 2000: 7:30 a.m. ET
Stocks peer up from bottom, but optimism checked by obstacles
By Staff Writer Franklin Paul
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NEW YORK (CNNfn) - To hear experts tell it, Wall Street stocks are eagerly poised to recover some of the eye-popping losses sustained in recent months, if only a few critical obstacles would get out of the way -- namely, concerns over the future of the U.S. economy and the presidential election.
Stocks could inch higher this week if buyers' confidence is buttressed by evidence that the sharp declines of recent weeks, particularly in technology stocks, are over.
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We've been selling stocks since August. For a one day rally it is very justified.
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Art Hogan
Jefferies & Co. |
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A mild rally Friday on the beleaguered Nasdaq seemed to encourage experts to think that the market is severely oversold and that perhaps the worst of the selling is over -- for now.
"We've been selling stocks since August," Art Hogan, chief market analyst at Jefferies & Co., told CNNfn's market coverage. "For a one day rally, it is very justified," Hogan said of Friday's gains.
Justified, that is, for a rally that occurred one day after a selloff that saw the tech-heavy Nasdaq drop to its lowest level in 15 months. Positive market breadth and heavy volume proved that investors may be ready to buy into an improving market chock full of stocks selling at deeply discounted prices.
But like other analysts, Hogan cautioned that a great deal of uncertainty still hangs over the market, limiting the chances that any gains in the Nasdaq and Dow Jones industrial average can be sustained.
"Unfortunately, the reasons that have caused the selloff are still with us," Hogan added. "We still must have a president of the United States for next year; we need to get the Fed off of the tightening bias that they have, and we clearly need to see some economic data that says the economy's not going into a recession."
Looking for a bottom
Peter Cardillo, director of research at Westfalia Investments, said the market is seeking a bottom, a place where selling stops and buyers come back to the table, even thought they may not see marked results for some time.
 "The damage is done," Cardillo said of the recent and remarkable drop in stock prices. "So you want go buy for the rebound, which could be six to eight months away down the road."
"They've taken some of these stocks down to really low valuation levels in tech and telecom and the leaders are going to come out ahead of the game," Tony Dwyer, market strategist at Kirlin Holdings, told CNNfn's Before Hours. "This is an opportunistic environment for any of those companies that have cash and are looking to acquire technology."
On Friday, the Dow fell nearly 41 points to 10,373 while the Nasdaq gained more than 47 points to 2,645 and the S&P 500 rose less than a point to 1,315.
Buyers' enthusiasm checked by uncertainty
Even with highly regarded stocks such as Cisco Systems (CSCO: Research, Estimates) and Wal-Mart (WMT: Research, Estimates) trading at levels that excite investors, there are still reasons to be concerned that existing pressures could push the issues down further.
Perhaps most notable is the market's concern about interest rates and the economy. Some market watchers fear that Federal Reserve chairman Alan Greenspan's carefully orchestrated economic slowdown, constructed to cool a roaring economy and ward off inflation, may end up plunging the United States into a recession.
 With evidence mounting that the rate hikes have done their job, many market watchers are now hoping the Fed will either cut rates or at least shift its stance toward a more neutral position.
The National Association of Purchasing Managers (NAPM) said Friday that activity at U.S. factories slowed for the fourth consecutive month in November, further evidence that the U.S. economy continues to slow.
The NAPM's manufacturing index slipped to a weaker-than-expected 47.7 percent in November from 48.3 percent in October. The reading remains below 50 percent -- the level that points to growth in U.S. manufacturing
Another reason for caution, experts say, is the uncertainty caused by the presidential election. The race between Democrat Al Gore and Republican George W. Bush is still unresolved after more than three weeks.
"Short run performance will probably be dominated by selected defensive
themes until the presidential election has been decided," said Christine Callies, chief investment strategist at Merrill Lynch.
"Once the uncertainty has been resolved, however, we expect leadership to broaden to include a broad array of growth cyclical, including technology, high-quality consumer cyclicals, medical technology, technology hybrids in capital goods, and utilities," she added.
Concern about technology stocks
Of great concern also is the fate of technology companies, amid worries that computer and Internet-related stocks, a key catalyst to gains in recent years, will not sustain a robust rate of revenue growth in the wake of a slowing U.S. economy.
Thursday's selloff on the Nasdaq, which is rich with tech stocks, was spurred by Gateway Inc., after the PC maker warned that its fourth-quarter earnings would be half what Wall Street forecasts projected. The drop was further fueled by chip maker Altera, which said that its fourth-quarter revenue would miss Wall Street's estimates by more than 11 percent.
 "Next week we really kick that (warnings) season off," Hogan of Jeffries said Friday. "There's going to be more Gateways out there, and that's not going to help. People will make the argument that a lot of that bad news has been priced into the market already, but it certainly wasn't yesterday."
Investors will keep a keen eye this week on several economic indicators, the most important of which is the jobs report, which will be released by the Labor Department on Friday.
A consensus of experts expect November's unemployment rate to come in at about 4.0 percent, compared to 3.9 percent in October.
Other economic data released during the week include consumer credit figures, due on Thursday, initial jobless claims on Wednesday and new home sales figures, expected to be revealed early on Monday. 
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