Stocks: Mixed Day but Good Month
The stock market ended mixed Wednesday despite the Federal Reserve’s latest interest rate cut, but Wall Street’s bulls were more impressed with the month than the day: Most major stock indexes posted gains for January, and historically that has foretold an up year for the market.
The blue chip Standard & Poor’s 500 index edged down 7.72 points, or 0.6%, to 1,367.11 Wednesday, but for the month the S&P; jumped 3.5%.
The Nasdaq composite index lost 65.62 points, or 2.3%, to 2,772.73 for the day, surrendering an early rally after the Fed announced its widely expected half-point rate cut. But Nasdaq rebounded 12.2% for the month, after diving 39% last year.
The so-called January Barometer holds that investors can usually tell whether stocks are headed for a good year or a bad year based on January’s trend. The barometer has been accurate 46 of the last 51 years, according to market historian Yale Hirsch, author of the Stock Trader’s Almanac.
“A lot of investment and corporate decisions are made on a calendar basis, and depending on the economic conditions out there, that’s what drives the market one way or the other” early in the year, Hirsch said.
“A good January shows that there is still demand for equities,” said Greg Nie, an analyst at First Union Securities Corp. who studies patterns in stock prices and volume to predict market moves.
What’s more, in odd-numbered years when new U.S. Congresses convene, such as this one, the S&P; index’s January direction has been a perfect indicator of the market’s performance for the year, Hirsch said.
That reflects how new Congresses want to put their stamp on the economy, he said--as the current Congress is expected to do with an income tax cut, as proposed by President Bush.
A year ago, the S&P; index fell 5.1% in January--and indeed foretold a down year. The index lost 10.1% for the full year.
Hirsch’s batting average for the barometer gives it credit in four years when the market ended virtually flat, though not in line with the January trend--such as in 1994.
All in all, the barometer’s success reflects in part that “there’s so much reinvestment that typically comes into the market at the beginning of the year, that if the market doesn’t respond, it’s a measure of a lack of investor confidence,” said Steve Shobin, president of Americap Advisors.
Still, analysts also note that the stock market’s trend this January represented a bet by investors that the economy will stay out of recession, helped by the Fed’s interest-rate easing campaign.
But an economic revival--and with it, rebounding corporate earnings--aren’t certain, of course.
Many analysts, however, continued to wax bullish in the wake of the latest Fed move.
“The cavalry has arrived. With its rate cut and clear signs of more to come, the Fed has shifted the market’s focus from the raft of earnings disappointments to the promise of a re-accelerating economy in the second half,” said John Forelli, portfolio manager at Independence Investment Associates.
“The good news is that the market got what it wanted, but the better news is that the Fed is acting aggressively to keep the economic expansion going, which in turn should help maintain the slowly developing recovery we’ve seen in stocks,” said Stuart Freeman, strategist at A.G. Edwards.
Overall Wednesday, losers outnumbered winners 7 to 6 on Nasdaq, but rising stocks led losers 9 to 7 on the New York Stock Exchange.
The Dow industrials inched up 6.16 points to 10,887.36, surrendering a bigger gain early in the session, before the Fed announced its move.
Stocks swung wildly after the Fed announcement, slumping initially, quickly rebounding, then falling again.
Many analysts expected the post-announcement selling because the market had already factored the half-point rate cut into stock prices. “This was the most telegraphed rate cut in history,” said Gary Kaltbaum, a technical analyst at JW Genesis.
Investors showed the most caution in the tech sector, which has suffered the bulk of corporate earnings disappointments in recent weeks. Soft profits and reduced outlooks again hurt long-battered stocks in tech, analysts say.
Applied Materials lost $2.13 to finish at $50.31. The maker of semiconductor equipment said after the market closed Tuesday that sales for its fiscal first quarter would fall below estimates as customers cut back purchases.
Amazon.com, which warned late Tuesday of a future slowdown and said it was cutting 1,300 jobs, fell $1.63 to $17.31.
Other tech losers Wednesday included Adobe Systems, down $9.06 to $43.69 after a profit warning; Dell Computer, down $2 to $26.13; Emulex, down $9.50 to $93; and Brocade Communications, down $8.19 to $90.31.
The Dow got a big boost from the retailing sector, which tends to rise when interest rates are lowered and consumers spend more. Wal-Mart advanced $3.03 to $56.80 and Pacific Sunwear rose $1.44 to $35.
Many energy stocks also gained, led by Exxon Mobil, up $2.17 to $84.15, and Unocal, up 71 cents to $34.52.
In the bond market, Treasury yields fell across the board. The 1-year T-bill yield slid to 4.59% from 4.66% Tuesday. The 5-year T-note fell to 4.78% from 4.90%.
The yield on the 30-year T-bond dropped to 5.50% from 5.60%. The bond got an additional push after Bill Gross, bond fund guru at Pacific Investment Management Co., told CNBC that “the best portion of the Treasury curve is actually the long-term Treasuries. The best value in the market is now the long Treasury bond at about 5.5%.”
Market Roundup: C7, C8
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A Hot Start
January’s stock market trend has usually set the tone for the rest of the year, and that fact is fueling more optimism among Wall Street’s bulls: Most market indexes scored sharp gains last month, led by the Nasdaq telecom and Nasdaq composite indexes. The stock market has been powered higher in large part by the Federal Reserve, which cut interest rates again on Wednesday.
A Promising January 2001
Nasdaq telecom: +19.9%
Nasdaq composite: +12.2
S&P; 500: +3.5
S&P; mid-cap: +2.2
NYSE composite: +1.0
Dow industrials: +0.9
The January Barometer, 1980-2000
Since 1950, the Standard & Poor’s 500 index’s trend in January has accurately foretold the market trend for the year 46 of 51 times: An up January usually meant an up year, and a down January usually meant a down year.
Sources: Bloomberg News, 2001 Stock Traders Almanac
