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Investors advised to stay put
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April 20, 1999: 3:09 p.m. ET
Shift to value stocks likely to continue, but Internet/tech will bounce back
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NEW YORK (CNNfn) - The market fluctuations that have caused investors so much angst recently returned for an encore appearance Tuesday and aren't likely to abate any time soon.
But long-term, most analysts see the ongoing sector rotation from technology and Internet stocks to more cyclical shares once again turning on its head, perhaps in a matter of weeks. That means the greatest challenge confronting investors today is exactly where to buy back in - if they ever left at all.
"The question today is more opportunistic," said Richard Cripps, chief market strategist for Legg Mason Inc. in Baltimore. "The question is exactly where can I be a buyer of America Online (AOL) or some of these other stocks that have been weakened?"
Staying focused
Other analysts agree, and advise investors to stay focused. The key to investing the next few weeks, they say, will be identifying strong growth companies within a variety of sectors, including transportation, health care and, yes, even technology.
For instance, A.G. Edwards & Sons Equity Strategist Mark Simpson said traders at his firm agreed early Tuesday morning to buy large-cap health care companies, which were hammered Monday, at any opportunity.
"We told our people here this morning to use the break to start buying health care again," Simpson said. "Our feeling is the move over into cyclical stocks is going to be short-lived and the money will be moved back into those companies with strong solid earnings growth, like health care."
Others, like Robert Robbins, a market strategist with Robinson-Humphrey in Atlanta, are keeping their recommended portfolios weighted mostly toward technology issues, believing the latest turbulence will soon pass as stocks reach more reasonable valuations.
But exactly how soon that will occur is the million-dollar question few are willing to venture a guess on at this point.
"Every day there is a different personality to the market. I'm worried about that," William Roe, money manager for Melhado Flynn & Co., told CNNfn Tuesday morning. "I think it makes it difficult for investors."
Institutional might
In truth, the market's sudden shift to cyclical stocks was not sudden at all. The momentum has actually been building for a couple of weeks now as institutional investors, inspired by easing economic concerns and a number of surprising earnings reports, shifted their money from technology stocks many believed had become overvalued.
The rotation intensified Monday morning, with investors flooding into blue chips, oil and transportation stocks and driving the Dow Jones industrial average up about 272 points, before everyone decided to take some profits, reversing the Dow's fortune.
Stuck in the middle were the growing number of short-term day traders, whose passion for Internet and technology shares have spearheaded the technology-laden Nasdaq's upward surge the last few months. Spooked by the sudden shift in institutional dollars away from their favorite shares, day traders quickly abandoned ship, sending the NASDAQ on a steep descent.
Roe is one of the few who believe the flight from technology could become a more long-term trend.
"I think we're going to see a correction and I think it's going to be painful," Roe said. "Day traders got killed [Monday]. They've been getting killed over the last four months. Maybe now they're going to step to the sideline . . . and maybe, they're not going back in."
But others view that as unlikely. Even with Monday's big sell-off, most were able to sell out at large profits, only wetting day traders appetite for more.
The only question for that group now is, when to get back in?
Catch the falling knife
Landor Investment Chief Investment Officer Dodge Dorland said the opportune moment to buy back in is a difficult question to answer at this point. In fact, he compared the dilemma to trying to "catch the falling knife."
"The Internets are being driven by day-traders, traders that are very quick to pull the trigger," he told CNNfn Tuesday morning. "It's very hard to pick the level where they have support."
Expect for a few instances, it doesn't appear the markets are there yet though.
"Technology had run up so much that it's not surprising some of these would come off pretty hard," Robbins said. "You can't minimize the possibility that technology has had a great, huge run and there will be a decline for a while."
Still, Robbins maintains a portfolio weighted strongest toward technology stocks is wise, although he is adding more cyclical stocks, like oil service companies. But there is no doubt technology shares will bounce back soon, he said.
"It's not inconceivable that they could bounce back in a summer rally," he said. "There's a lot of comeback material here. People who don't own enough high-growth names ought to do some bottom fishing here."
Cripps advises a more cautious approach, at least until things stabilize a little more.
"We haven't hit the bottom yet," he said. "I don't think you go bottom fishing [today]. I would wait it out."
Investors apparently agree. By early afternoon, nearly 85 percent of those participating in CNNfn's online poll said they were keeping technology shares in their portfolio. Even more surprising, three out of every four respondents said they do not believe the Internet/tech bubble has not yet burst.
Sixty-four percent said they viewed the market's latest fluctuations as a buying opportunity.
And already, several downtrodden shares were showing new signs of life.
Internet giant America Online, one of the few Internet stocks considered to have strong fundamentals, was back up 11-1/8 to 127 in early afternoon trading. Three other Internet firms, Exodus Communications, Doubleclick Inc. and Inktomi, all posted at least 20 percent growth as well after Goldman Sachs showered the three with trading upgrades.
But until the sector as a whole moves back into favor, analysts believe cyclical stocks should continue to lead the way.
"We're at a point where there is some rotation, but I believe it's a very positive development because you're getting broader participation on the economically sensitive sector because, the fear of recession is going away and the deflation fear is gone," Joseph Battipaglia, a stock strategist with Gruntal & Co., told CNNfn's "Business Day."
"There had to be some point where there was some give-back," he said. "That's the point we're at now." 
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