Markets & Stocks
Shrugging off the bad
It's not just good news that the market has been shaking off lately.
November 15, 2003: 8:28 AM EST
By Justin Lahart, CNN/Money Senior Writer

NEW YORK (CNN/Money) - Lots of Wall Streeters have been professing surprise at how the market seems to keep on shrugging off good news lately. But what about all the bad news it seems to be ignoring?

Take, for instance, the market action on Wednesday, after a truck bomb killed at least 26 people at the Italian paramilitary police headquarters in the Iraqi city of Nasiriya.

One might have taken that as a sign that the cost of occupation will be higher than previously thought, that it might mean the United States will be getting less help in the Iraqi rebuilding effort from other countries, and that it will take even longer for Iraqi oil to flow freely. All of those things would count as negatives for the U.S. economy.

But the stock market ignored that script, and the Dow rose 111 points.

Or how about the mutual fund trading scandal? Over the course of the past week, it pulled FleetBoston, American Express, Pilgrim Baxter, Schwab, Legg Mason and Bank of New York into its wake. The word on the Street is that it's all going to be a wash, because although investors may change the way they invest in the stock market, they're going to keep on investing just the same.

"The mutual fund scandal is a bigger deal than anyone thinks right now," said Bollinger Capital Management head John Bollinger. "There's real turmoil in the mutual fund world. You don't take down a fund group like Putnam without creating a tremendous amount of angst and uncertainty."

Putnam has reported that its assets under management have fallen by $14 billion so far as public funds have withdrawn their cash in anger over the mutual fund company's market timing trades. On Thursday Putnam agreed to a settlement with the Securities and Exchange Commission.

Finally, consider the vaunted U.S. economic recovery. The most recent statistics have actually been anything but kind. The trade gap widened by more than expected, the latest weekly jobless claims report came in higher than expected, retail sales slowed by more than expected and industrial output rose by less than Wall Street had been expecting.

You can interpret the way the market has been ignoring this recent spate of bad news a couple of ways.

On one hand, you can say it's a sign that investors are blinded by their bullishness, and that there will come a time of reckoning when they finally realize that there are actually still problems in the world and things that can go wrong.

Or you can say investors have actually taken all of the bad news into account and still find stocks attractive -- a sign that the market can go higher.

Take your pick. Good luck.

Fattened bulls, fattened bears

We're pressing on toward Thanksgiving, and for many investors that means the focus of the coming week will be figuring how the stores are going to fare during the holiday season.

The recent news on that front has been somewhat disappointing. Besides the weak October sales report, there were also cautious comments from Target and America's biggest retailer, Wal-Mart.

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Still, despite the recent weakness, sales should do well, thinks Bank of Tokyo-Mitsubishi economist Mike Niemira.

An improving labor market is coming at the right time, and low inventory levels should mean retailers won't be forced to discount as they did last year. He reckons that sales at stores open at least a year will grow 4.5 percent in November and December over last year.

Many retailers are trying to push forward holiday sales in a bid to avoid excessively heavy discounting. (And you wondered why the Christmas decorations were already up.) As a result, weekly sales reports from the major retailers on Tuesday may help give some indication of what sort of tone holiday sales are going to have.

Key events in the week ahead

  • Economists polled by expect business inventories figures for September, due out Monday, held steady after dropping 0.4 percent in August.
  • The Empire State Index, a measure of New York manufacturing activity administered by the New York Federal Reserve due out Monday, has been gaining a following in the bond market. Last month's reading was 33.7; any reading over zero indicates growth.
  • The nation's key read on inflation at the consumer level, the Consumer Price Index, is due out Tuesday. Economists expect it gained 0.1 percent in October after climbing 0.3 percent in September. The core, which excludes food and energy, is expected to gain 0.2 percent.
  • October housing starts, due out Wednesday, are expected to come in at an annualized 1.85 million, down from September's 1.888 million. Building permits are expected to come in at an annualized 1.85 million, down from 1.875 million.
  • The October index of leading indicators, due out Thursday, is expected to climb by 0.2 percent after falling 0.2 percent in September.
  • The Philadelphia Fed's index of manufacturing in its region, due out Thursday, is expected to drop to 25 for November, from 28 in October. Any number over zero represents growth.
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