Volatility Fans More Likely to Find It in Politics Than in the Market

This column has been updated.

SAN FRANCISCO -- It was a startlingly nonvolatile session on Wall Street today, especially given it's an expiration week. Heck, it was relatively subdued given that it was a Tuesday in December in the early part of the 21st century.

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They're Bullish! Again! This Time It's for Real!

The Dow Jones Industrial Average was the lone winner among the three major stock proxies, gaining 0.4%, while the S&P 500 shed 0.7% and the Nasdaq Composite lost 2.8%. Most glaring today, however, was the absence of volatility, seemingly the one constant in an ever-changing market. The Dow traded in a 150-point range, but the S&P was locked in an extremely tight 10-point range between 1370.14 and 1380.20. (It closed at 1371.18.) The Nasdaq traded as high as 3002 around 10:30 a.m. but closed at 2931.83, just a few points above its session low, after a slow and steady decent from its initial climb.

Judging from the quietude on Wall Street, you'd almost get the impression traders were just waiting for some signal, which of course is exactly what many were doing. The signal -- a Supreme Court ruling on Bush vs. Gore -- was not forthcoming this day. (This evening, however, the U.S. Supreme Court reversed the Florida Supreme Court's order for a manual recount, saying "any recount seeking to meet the Dec. 12 date will be unconstitutional." S&P 500 futures were lately up 6.30 to 1405.60 in Globex trading in reaction to the ruling which, while, nuanced, appears to clear the way for an ultimate victory by George W. Bush.)

There's a somewhat obvious argument to be made that the rally petered out today simply because the Nasdaq had risen about 20% from its intraday low on Nov. 30 to its intraday high Monday. Another catalyst for today's setback was renewed concerns about chip stocks after Dallas Semiconductor(DS Quote) warned about its fourth-quarter results and Credit Suisse First Boston downgraded TriQuint Semiconductor(TQNT Quote), calling "recent exuberance surrounding" the specialty chipmaker "unwarranted."

Dallas Semi fell 23.5% today while TriQuint lost nearly 20%; the Philadelphia Stock Exchange Semiconductor Index shed 6.2%, giving back nearly all of its advance from the previous day.

Those factors notwithstanding, Thomas McManus, equity portfolio strategist at Banc of America Securities, observed the setback started midday Monday amid a realization the latest round of Supreme Court hearings "wasn't going to be so simple as reading the briefs and coming away with the same 5-4 decision" that granted Bush's request for a stay of the recount. "Right away you saw Justices [Anthony] Kennedy and [Sandra Day] O'Connor question Bush's lawyers quite aggressively."

The S&P 500 futures March contract traded between 1402.00 and 1391.00 today, entirely below yesterday's peak of 1412.50 -- "Clearly showing a number of people are sitting on their hands waiting some further information" before buying, he noted.

In all fairness, I should point out McManus is not one of those people waiting to buy, nor is he recommending such a strategy.

"I think we are in the midst of a bear market for tech and I don't think it's over," he said. "In bear markets, rallies are for selling, not buying."

One of the main reasons he is "resisting the temptation to jump aboard these little rallies" is a belief Wall Street is still underestimating the extent of the earnings slowdown. McManus recently lowered his 2001earning forecast for the S&P 500 to $59 a share. Assuming the First Call/Thomson Financial consensus of $57.72 for this year proves accurate (unlikely, given the number of profit warnings that abound -- the latest including Compaq(CPQ Quote) after the close), that would represent just 2.2% profit growth. Currently, the consensus 2001 forecast is for $61.96, which would represent 7.3% growth, (again) presuming the current 2000 estimates prove correct, which (again) they likely won't. Bottom line, expect further declines in earning estimates going forward.

McManus is also cautious because he expects redemptions from underperforming tech funds to move into 2000's big-winning fund groups, including utilities, REITs and health care. Because of tech's still heavy weighting in the S&P 500 (much less the Comp), fund flows out of tech and into other areas will have a disproportionately negative impact on market proxies.

GuruVision: Is This a Rerun?

Last night I focused on the Fed and Ixia(XXIA Quote), which rose another 3.7% today (although I reiterate the stock was much more attractively valued in the mid-to-high teens than in the mid-to-high 20s).

In reaction to that story, a few readers expressed chagrin at the absence of the weekly GuruVision programming. While I appreciate the interest, I didn't update GuruVision because the other stuff was more interesting/important, especially given the unusually large amount of attention given to the gurus elsewhere.

But in case you missed it, the bulls got even more bullish yesterday (surprise!), most notably Bear Stearns' Elizabeth MacKay and UBS Warburg's Edward Kerschner, who suggested the market had "reached one of the five most attractive opportunities of the past 20 years."

Kerschner's call got plenty of play on the financial news networks, but I don't recall anyone pointing out that the S&P 500 is down since its close on Nov. 14 , the last time the strategist made a "buy 'em with both hands"-type call.

Finally, a lot of attention was given to the fact Morgan Stanley Dean Witter investment strategist Barton Biggs made some positive comments about the market in general, and the Comp in particular, yesterday.

Forgive my insolence, but major market bottoms are usually associated with bulls turning bearish, not the other way around. Finally, those with an optimistic bent should ask themselves: Do you really want Biggs, who's earned a reputation as one of the most curmudgeonly characters on Wall Street, on your team?