Eerie Market Parallels Worry Some
Disappointing earnings reports late Tuesday from technology bellwethers Intel Corp. and Motorola Inc. couldn’t have come at a worse time for the stock market, some analysts say.
The stellar gains notched by those stocks and a relative handful of other tech issues in recent months have been among the few bright spots in a market that has been weakening by many other measures.
On Tuesday, rising interest rates helped send the broad market sharply lower, with the Dow Jones industrials sinking 231.12 points, or 2.2%, to 10,417.06, even before Intel and Motorola reported earnings.
Now some analysts fear that the highflying tech sector could lead an even deeper slide. Those concerns are compounded by the calendar: It’s October, reviving memories of market crashes in this month in 1987 and 1929.
Also eerie to some analysts: The Dow peaked this year on Aug. 25, the same day it peaked in 1987. The index is down 8% from this year’s peak; at this point in 1987, just three days before it plunged 22.6%, the Dow was off 9% from its high.
And, as in late 1987, interest rates are rising with inflation concerns, at a time when stock valuations relative to underlying earnings are near historic highs. The weak dollar, too, is an issue--this time versus the Japanese yen, while in 1987 the dollar was sliding versus the German mark.
Wall Street’s bulls say the comparisons aren’t valid. They argue that stocks are merely undergoing a normal “correction” that will set the stage for gains later this year.
“Actually, we have a really healthy market,” contended Stan Harley, editor of Harley Market Letter in Camarillo. “The bull’s not dead. It’s alive and well.”
But many Wall Street “technicians”--analysts who track the market’s historical patterns--say the strength in tech issues has masked the fact that in the market overall, the number of stocks falling in price on any given day has recently been overwhelming the number rising.
“The health of the market has hardly looked any worse than it does now,” said Ricky Harrington of Interstate/Johnson Lane, a brokerage firm in Charlotte, N.C.
That weak breadth, as it’s known, has existed for most of the last 18 months, but the disconnect between the broad market’s performance and the tech sector has been especially glaring lately.
To bearish analysts, that’s a sign that the foundation of the market is deteriorating. Many investors have been afraid to own all but the most glamorous stocks, such as Intel. If those highfliers finally crack, they could yank the rest of the market down hard with them, bears say.
Analysts point to other worrisome technical indicators:
* Even as major stock indexes rallied last week, the number of advancing stocks barely topped the number declining. In a healthy market, winners usually far outnumber losers.
* Trading volume has been heavy lately on days when the market has fallen and lighter on days when it has rallied. That suggests that investors are more anxious to sell than to buy.
* Some gauges of investor sentiment show that many investors remain fairly upbeat. In the contrarian ways of Wall Street, that’s a negative sign. Historically, markets rebound from sell-offs only after investors have become decidedly bearish and sell stocks in a rush.
“We probably have not had the flush-out type of bottom, and we probably have more selling to come,” said Brian Belski, chief investment strategist at George K. Baum & Co. in Kansas City, Mo.
The most bearish analysts point to similarities between today’s environment and the 1929 and 1987 pre-crash periods, and note that in both of those years, stocks crashed exactly 55 days after the Dow hit a peak. This year, as in 1987, the 55th day after the peak would be Oct. 19--next Tuesday.
“It’s a coincidence, but it’s an eerie coincidence,” Harrington said.
To bulls such as Harley, however, any parallel to 1987 means little. “I find it interesting,” he said. “Does that mean we’re going to crash on Oct. 19? I don’t think so.”
Many analysts note that interest rates were far higher in 1987. Moreover, the reasons for the market’s crash in that year--the Dow lost 508 points that Oct. 19, to 1,738.74--had much to do with portfolio managers’ computerized selling that snowballed. Today, trading would be halted at least temporarily if the Dow were to fall 10% in a day.
* MARKET SLIDES
Higher bond yields help hammer stocks. C4
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Deja Vu on Wall St.?
Some veteran Wall Street analysts are jittery ahead of the anniversary of the Oct. 19, 1987, market crash, when the Dow Jones industrials plunged 22.6%. The Dow this year peaked on Aug. 25--the same day it peaked in 1987. What’s more, this year, as in 1987, interest rates are rising and the dollar is sliding. But many market pros say the similarities are merely coincidental.
Dow Jones Industrial Average / Weekly closes through Oct. 12
1987: 2,417.44
1999: 10, 417.06
30-Year Treasury Bond Yield / Weekly closes through Oct. 12
1987: 9/93%
1999: 6.22%
Dollar vs. German Mark / Weekly closes through Oct. 12: 1,814
Dollar vs. Japanese Yenk / Weekly closes through Oct. 12: 106.31
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Source: Bloomberg News
