Is It Really ‘Old Times’ Again on Wall St.?
It almost seems like old times on Wall Street. Almost.
Initial public stock offerings are hot again--witness the 48% surge in shares of Tarzana-based medical lab services provider Unilab last week after their debut, and the 29% jump in the IPO of United Surgical Partners on Friday alone.
In the bond market, new high-yield junk issues already have topped $44 billion this year, surpassing the full-year total for 2000, as investors line up to buy risky bonds even as default rates on older junk issues continue to rise.
Thursday, cable TV giant Adelphia Communications was able to sell $1 billion in 10-year notes at an annualized yield of 10.25%. The firm had expected to raise just $400 million in the offering.
And in the rush to put new paper in investors’ hands, even some Internet companies are daring to step up to the counter again: Pasadena-based Web search firm Goto.com said Wednesday that it will offer 2.5 million shares for sale, as it looks to cash in on the sharp rebound in the stock’s price since late March--from $5 then to nearly $25 as of Friday.
Goto.com’s parent, Internet incubator Idealab, also wants to cash in. It plans to sell 5 million of its Goto.com shares concurrent with the company’s sale.
Investors’ willingness to climb further out on the risk curve is helping to cement the view on Wall Street that stocks’ yearlong bear market ended in early April. That is far from a universal opinion, but for now it’s carrying the day.
The turn in investor sentiment has been fanned by the belief that the worst is over--or soon will be over--for the battered technology sector, and that economic growth overall also is near its nadir.
The semiconductor industry, whose plunge over the last year taught a new generation of investors that technology remains inherently cyclical, last week provided more evidence that its business may be bottoming.
Industry leader Intel said Thursday that orders for computer chips so far this quarter are running as expected--depressed, but not worsening. Earlier in the week investors were heartened by other chip firms’ reports, which, while not upbeat, weren’t worse than what analysts say they had expected.
Despite renewed selling Friday, the tech-dominated Nasdaq composite index rose 3% for the week, its sixth advance in nine weeks. It has risen 35% from its 29-month low reached on April 4.
The data from the economy overall, however, remain decidedly bearish. The government said Thursday that new claims for jobless benefits hit a nine-year high a week earlier. Meanwhile, retailers reported weak May sales, and airlines said traffic tumbled in May as business travel waned amid continued corporate cost-cutting.
Arguably even more downbeat was a speech Wednesday by Federal Reserve Gov. Laurence Meyer. “There are no signs yet that the economy is strengthening” from the dismal first quarter, he said, despite the central bank’s five interest rate cuts since Jan. 3.
More significant, Meyer warned that when the economy does rebound, growth over the next few years is “unlikely” to come close to the spectacular performance of the late-1990s. That has worrisome implications for corporate profits, which ultimately are what support stock prices.
Still, Meyer’s is just another opinion, and whether his is more prescient because he sits on the Fed board remains to be seen.
In any case, many investors would say that Meyer isn’t telling them anything new, at least about the near term. If one piece of conventional wisdom has reigned in the last two months, it’s that the stock market always turns around six to nine months before the economy itself turns.
There’s plenty of historical precedent to back that up--which is why many investors seem so sanguine in the face of economic data that are cheerless. Much of the money that is flowing into stocks and high-risk bonds today is money that simply doesn’t want to take the chance of missing a major market bottom.
Pushed aside, for now, are concerns that nag many economists: the potential for consumer spending to weaken far more in coming months than Wall Street expects, for example, leading to a deeper decline in corporate earnings.
Interestingly, while many investors remain focused on the tech sector in their efforts to bottom-fish, there is a lot more going on in the market than tech. That is why, even though it may seem a bit like “old times”--meaning, like the tech-centered speculative mania of 1999 and early 2000--the market’s current rally in many ways appears healthier.
Consider: Standard & Poor’s index of smaller stocks hit a record high in late May and is hovering just 2% below that level. S&P;’s mid-cap stock index likewise is just 3% from a new high.
Moreover, in the rally of the last four weeks, the gains have been spread evenly among diverse sectors such as health-care, financial services and real estate investment trusts--in addition to tech.
And thanks to possible import intervention by the Bush administration, some steel stocks have outpaced the gains in many tech giants since early April.
Seems like old times?
Not quite.
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Tom Petruno can be reached at tom.petruno@latimes.com.
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New Economy vs. Old Economy
Investors savvy enough to buy computer networking giant Cisco Systems at its low April 6 have enjoyed a 50% gain in the stock. But that gain is eclipsed by the 53% surge in shares of old-economy titan USX-U.S. Steel from the same date, through Friday.
Cisco Systems
Friday: $20.49
Cisco Systems and USX-U.S. Steel shares, weekly closes
Source: Bloomberg News
