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was
a tug of war between the "Bulls" and the "Bears" of Wall
Street.
The "Bulls' focused on the Fed's actions of lowering short-term
interest rates as a sign that the stock market would continue
to gain steam, as the worst was over for the declining U.S.
economy. The "Bears" however, focused on the continuing
deterioration of corporate profits with no end in sight.
In addition, adding fuel to the "Bears" thesis was the plethora
of announcements of layoffs pervasive to many sectors in
the U.S. economy.
Wall Street investors were loath to accept a lack
of visibility ahead that many corporations were not
providing to the public.
Investors were on a roller-coaster ride in May, with most
major stock market indexes finishing where they started.
The "Bulls" and the "Bears" continued their battle throughout
June. Each battle was fueled by the continuation of
the news disseminating that the U. S. economy was continuing
its decline. Many companies from many sectors released a
record number of "pre-announcements" as to the decline of
their earnings or the predictions of losses for the
foreseeable future. Adding more fuel to the fire was the
news being released
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as
to the decline of the global economies as well as the U.S.
economy.
The Dow Jones Industrial Average representing the old economy
stocks trended downward in June. The NASDAQ representing
the new economy
stocks trended up-ward in June, significantly off its recent
lows.
The logic for this dichotomy may have been the belief by
many investors that since many NASDAQ stocks were
punished the worst in the past year, that perhaps they were
near their trough.
Investors have been reluctant to believe that the high technology
companies that are represented by NASDAQ could have a protracted
decline in growth. Only time will tell if this thesis
will be validated, or whether high technology companies
will succumb to the same business cycles of any other company
outside of this sector.
In my opinion, there is nothing that would exclude the high
technology sectors from the boom and bust cycles that other
sectors of the economy are periodically exposed to. With
this said, it is certainly possible for the bust cycle of
the high technology sector to continue for some time to
come, purging the excess caused by the robust spending by
many companies in the last few years along with the ac
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companied
meteoric growth of many high technology bellwethers in this
environment.
The Fed met again at their regular meeting on June 27th.
They were a bit more timid this time, only lowering short-term
interest rates 1/4%. Wall Street had expected
this outcome and as such, the stock market finished the
last few days of June with little change.
Bonds traded in a narrow range throughout the second quarter
of 2001. Junk bonds, also known as high yield bonds,
were the big losers, as investors shunned this class of
bonds, favoring investment grade bonds instead. Perhaps
bond investors are more sober than stock investors as they
are predicting a flight to quality as the economy slows
and the potential escalation of corporate bond defaults
that are associated with an economic slowdown.
I remain very cautious of what is ahead for the U.S. and
global economies and its impact on corporate profits.
I remain heavily weighted in the energy and health care
sectors, and under-weighted in technology stocks to avoid
any downdraft in the stock market in the weeks to come as
earnings reports continue to be released for the second
quarter of 2001.
back
to page 1
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