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Mortgage News You Can Use
Time to Be Choosy as Rally Stalls
Sat February 7, 2004 12:26 PM ET
By Kenneth Barry
NEW YORK (Reuters) - First, the good news. Many large companies have just delivered better-than-expected fourth-quarter earnings and the economy is growing at an above-average pace. But the bad news is stocks seem to be running out of steam.
The double-digit increases in major stock indexes in 2003 have given way to paltry advances so far this year. In January 2004, the Dow Jones industrial average rose a mere 0.3 percent.
Are the good times over for Wall Street? Is it time for equity investors to pull back?
No, say some money managers. The fundamental factors for the economy, for companies and their share prices are still positive. But a different set of companies may be set to prosper as the recovery moves ahead. So the experts recommend rotating from scatter-shot stock picking, which might have worked in 2003's stampeding market, to a more targeted approach this year when gains will be slow but steady.
The Dow average suffered its worst fall in three months last week after the Federal Reserve signaled an interest-rate hike might come sooner than expected, and has moved little since then. But the pullback might have left the market in better shape than it was before, said Timothy Connors, chief investment officer of value equities at Delaware Investments.
HEALTHY PULLBACK
"We look at what happened as a healthy correction," said Connors. The stock market may have had "speculative excess," particularly in technology shares and stocks linked to China, India and commodities businesses, said Connors.
The frothy trading in those stocks was starting to make the whole market look expensive, he said. But not any more.
"My interpretation is that the Fed won't allow the speculative excess that occurred in the late '90s," he said. The new, more temperate environment means investors will have to be choosy about the stocks they pick, Connors said.
Besides the interest-rate scare, another contributor to the market's lull -- paradoxically -- is good earnings news, said Tim Ghriskey, president of Ghriskey Capital Partners. Stocks that hit their earnings forecasts are just not good enough. It's a variation of "buy on the rumor, sell on the news," said Ghriskey.
"If you look at this reporting period for corporate earnings, and at the prior two periods, the market has acted this way," he said. "Traders are taking the opportunity of strong corporate earnings reports that are well above consensus on average to sell stocks."
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