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Kandel on market pulse
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November 3, 2000: 7:53 a.m. ET
Is the stock market back on track for a possible record-setting rally?
By CNNfn Financial Editor Myron Kandel
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NEW YORK (CNNfn) - I feel pretty good about the stock market -- and the economy -- these days, even though the Dow Industrials have just had two losing days in a row and both productivity and economic growth fell in the third quarter from the second.
Let's take the stock market first. The Dow has indeed been in the minus column the last two days. But those losses -- 71 points on Wednesday and just under 19 on Thursday -- amount to just a drop in the bucket, considering the Dow's nearly 1,000-point surge over the previous nine sessions. A pullback from that powerful rally was due, and the fact that so far, it's been so slight is a testament to the over-all strength of the blue chips.
And the NASDAQ composite, which had fallen much more sharply than the Dow, and was continuing to lag, is now showing some vigor as well. On Tuesday, the NASDAQ zoomed 178 points, or more than 5 1/2 percent in one day, and then, after dipping 36 on Wednesday, rose 95 on Thursday, outstripping the Dow once again.
I'm out on a limb, having predicted -- even when the market was in the depths and some Wall Streeters were talking bear market -- that the Dow would hit 12,000 before the end of this year. With the blue-chip average at 10,880 at Thursday's close, I feel a lot better about that prediction than I did two weeks ago Wednesday, when the Dow staged a brief 435-point collapse down to 9,654.
 So I think the stock market is right on course -- with some interruptions, of course -- for a rally that will carry the Dow, although not the NASDAQ, to record highs.
One reason for that view are signs the economy is on course for a soft landing, slowing, but not too much. I say, on course, because it's important to keep in mind that the economy hasn't touched down yet, and we don't know what lies ahead. The next two months may very well be the key, when we'll learn what kind of spending mood the American consumer is in this Christmas shopping season.
So far, though, we know that the gross domestic product did slow substantially in the third quarter, to an annual growth rate of 2.7 percent from the red-hot -- and unsustainable, without igniting inflation -- 5.6 percent of the second quarter. It wasn't that long ago, that the Fed would have considered 2.7 percent a bit too torrid. But that was before the big jump in productivity convinced the Fed that stronger growth was indeed acceptable.
Productivity, we learned on Thursday, did decline in the third quarter, down to an annualized 3.8 percent, from a tremendous 6.1 percent in the second. But it's still at a solid rate of growth, and that relieves pressure on companies to raise prices to maintain profit margins.
So the economy is moderating nicely, the stock market is pausing only slightly in the midst of a solid rally, and the Fed must be feeling pretty good these days. I'm hoping the landing doesn't get bumpy. But if it does, my guess is that the Fed is ready to give the economy a shot in the arm by cutting interest rates. Wayne Angell, a former Fed governor who is now chief economist at Bear Stearns, agrees. He says he expects two quarter-point cuts by the Fed next year. For the next few days, though, the nation's focus will be on Election 2000. 
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