Bull Market's Weight Is Resting on the Shoulders of Fewer Stocks

Bull Market’s Weight Is Resting on the Shoulders of Fewer Stocks

By TOM PETRUNO

May 28, 1998 12 AM PT

One view of the U.S. stock market’s progress--or lack thereof--over the last month is that what’s going on is a game of musical chairs. And there now are very few chairs left.

Investors have fled many stock groups on worries about fading corporate earnings growth. They have piled into a relative handful of groups, most of which have one thing in common: They would be beneficiaries of continuing strength in the domestic economy--especially robust consumer spending.

As the accompanying chart shows, five of the 10 best-performing sectors among Standard & Poor’s 500 index stock groups over the last month have been retail-related, including clothing retailers, department stores and drugstores.

Restaurants were the third-best sector, led by a surge in McDonald’s stock.

The best-performing group overall since April 27 has been the auto stocks, but that’s because of Daimler-Benz’s surprise takeover bid for Chrysler Corp.

Meanwhile, the 10 worst-performing groups since April 27 are mostly commodity-related--groups such as gold miners, oil and gas drillers, metals producers and paper companies.

The commodity sectors are being hammered by falling prices for many raw materials as demand in Asia weakens.

The question now is whether the consumer-related stock groups can hold up the broader market indexes, such as the Standard & Poor’s 500, if the commodity and industrial groups keep sliding.

So far, the S&P; 500 is off just 3.6% from its intraday record high of 1,132.98 set April 22.

What’s clear, however, is that with fewer groups appealing to investors, the number of stocks supporting the market overall is shrinking--the musical chairs analogy.

On Wednesday, for example, the Nasdaq composite index rebounded from a low of 1,742 to close up 3.01 points, at 1,781.10. But the index’s gain was mostly powered by gains in shares of Microsoft and Dell Computer. Overall, 3,215 Nasdaq stocks fell while 1,154 rose.

That’s not the kind of breadth on which new bull market moves are based.

Tom Petruno can be reached by e-mail at tom.petruno@latimes.com.

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Running for Cover

The best-performing stock groups over the last month have generally been those that benefit from strong domestic consumption--including retailers and health-care stocks. The losers have been companies involved in commodity businesses--where prices for basic goods are falling.

Top Stock Groups

Group: Gain since April 27

Autos: +17.2%

Clothing retailers: +12.3%

Restaurants: +9.5%

General retailers: +9.0%

Department stores: +7.9%

Drug stores: +7.1%

Food makers: +6.5%

Divers. health care: +6.3%

Specialty retailers: +5.3%

Chemicals: +5.3%