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Title: Economy Points Down, Takes Market With It
Source:
WSJ
URL Source: http://online.wsj.com/article/SB100 ... mod=WSJ_hpp_MIDDLE_Video_Third
Published: Jun 5, 2011
Author: GREGORY ZUCKERMAN
Post Date: 2011-06-05 20:50:12 by Happy Quanzaa
Keywords: Obama-doma-ding-dong, Obamatuer Hour, Obamanomics in Action
Views: 2352
Comments: 3
With summer around the bend, investors are fretting about the return of something much more unpleasant: the bear market.
Suddenly, there are reasons for worry that stocks could be entering a difficulty period, including suddenly poor economic data, troubling signs from housing and a rush of companies selling shares.
The Dow Jones Industrial Average fell 2.3% last week, its fifth down week in a row. The Dow is now down 5.2% from its post-crash high, set in May. Other stock indexes also are suffering. The Nasdaq Composite fell 2.3% and is now down 46% from its high. The Standard & Poor's 500-stock index was also off 2.3% for the week.
Highlighting the ugly week: The Dow tumbled nearly 280 points on Wednesday, its worst single day since August 2010, on fears that the U.S. economy is in the midst of a new slide -- one that may be hard to halt because the government and Federal Reserve already have done so much to try to juice the economy.
Despite the gloom and doom, it's important to remember the market is still sitting on respectable gains in 2011. So far this year, the Dow is up 5%, the Nasdaq has gained 3%, while the S&P 500 is up 3.4%.
Beyond that, the market has a lot going for it, analysts note, including super-low interest rates, hefty corporate profit margins and attractive prices for shares of many stable, global companies. Some economists now expect the U.S. to grow at an annual rate of less than 3% in the months ahead, down from recent expectations of 3.5%.
"To us, there is a difference between a slowing economy and one that is heading in reverse and right now the data only suggest a mild slowing, which could end up being nothing," says Jeffrey Rubin of Birinyi Associates. "We are not overly worried about one or two months of ho-hum economic data."
The upshot: Investors should take profits from shares of growth companies that have soared, while shifting into safer companies, especially those benefiting from stronger growth in foreign markets, some investors and analysts say.
"Investors are being bounced around, but instability should be expected as the global economy undergoes an historic rebalancing," says Daniel Arbess, who runs the $3 billion Xerion hedge fund and is a partner at Perella Weinberg Partners.
Mr. Arbess, who last week visited China and noted the continued vigorous pace of growth in the nation, is sanguine on the long-term outlook for U.S. and international stocks, especially those that will benefit from continued growth in China, Brazil and other emerging-market nations. "Asia is rising and developed markets are consolidating. ... There are great opportunities for those who have the conviction to avoid short-term broker calls and embrace the big picture."
Behind the recent hand-wringing is a torrent of troubling data. A widely watched survey of May's manufacturing activity showed its weakest levels in almost two years and the largest one-month decline in almost three decades; auto sales in the month also disappointed; and housing prices continue to fall. Prices in 12 of 20 major cities have fallen down more than 5% in the last year, with Minneapolis down nearly 10%. Recent high prices for gas have taken a toll on consumers.
To top it all off, the Conference Board's index of consumer confidence fell to 60.8 in May from 66.0 in April, well below the consensus of economists of almost 67, suggesting that consumers are turning more gloomy, potentially hurting spending in the months ahead.
Meanwhile, Europe continues to struggle to deal with the debt and growth problems of nations like Greece and Spain, and Moody's Investors Service last week cut Greece's credit rating again. Even the U.S. credit rating is in question, rating agencies said, because politicians continue to debate the nation's debt ceiling. Meanwhile, the ratings of Bank of America, Citigroup and Wells Fargo could be cut because the government is expected to reduce its support for the largest financial companies.
On Friday, data showed hiring slowed dramatically in May and the unemployment rate kept rising to 9.1% from 9%, adding to concerns that recent improvement in hiring is stalling.
"Double-dip concerns are well founded," says Jack Ablin chief investment officer of Harris Private Bank in Chicago. "The government changed a flat tire in 2008 and now we're driving around without a spare."
Some have decided to exit ahead of September, the market's worst-performing month.
But Mr. Ablin notes that by some measures, stocks aren't at expensive levels. For example, the market's earnings yield, or the reciprocal of its price/earnings ratio, is about 2.5 percentage points higher than the yield on many investment-grade corporate bonds, the largest gap in more than a decade. That suggests stocks could be attractive, at least relative to many bonds, as long as those earnings aren't ephemeral.
James Paulsen, chief investment strategist at Wells Capital Management, recommends emerging-market stocks.
Shares of many of these nations have done poorly lately, partly because their central banks have raised interest rates to combat inflation. But Mr. Paulsen argues they will soon quit tightening "and these stocks will come to life," something that's already been happening over the last few weeks.
He also likes U.S. technology stocks, citing the stash of cash many are sitting on.
Kenneth Hackel, president of CT Capital, an investment advisory firm, is a fan of Google (GOOG). The search giant has done poorly in recent months, as investors fret about its spending, but Mr. Hackel notes the company's stable business and hefty cash flows.
"We think mining stocks, which have been aggressively sold in recent weeks, are very attractive right now," says Mr. Arbess, who is a fan of Rio Tinto (RIO), the second-largest mining company, which sports hefty cash flow. "Industrial commodities are a perfect straddle for our times. China has an unrelenting demand for them, and they're a perfect hedge against Western money printing." (2 images)
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#2. To: Happy Quanzaa (#1)
The markets should be down at April 09 levels.
We haven't even started yet.
Housing at 1987 levels now. State/Local layoffs being debated as I type.
#3. To: Happy Quanzaa (#0)
The Owe-bama economy continues its downward trend, picking up speed as it falls.
He's toast next year.
Proxy IP's are amusing.....lmao
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