What a Week: Political Uncertainty, Economic Concerns Roil Economy
SAN FRANCISCO -- Our long national nightmare of uncertainty showed hints of ending, but ultimately there was no resolution on either the political or market front this week.
Early Friday, a Florida circuit court ruled Florida Secretary of State Katherine Harris was justified in denying recount petitions of several counties. The decision appeared to clear the way for a declaration of a victory in the endless presidential election, following the counting of absentee ballots and notwithstanding additional legal challenges.
The market rallied initially on the news and the apparent victory (again) by Gov. George Bush. But the rally faltered almost as soon as it started, mimicking the broader trend of recent weeks. Perhaps traders anticipated what would occur Friday afternoon, when the Florida Supreme Court issued a ruling blocking Harris from certifying the election.
Concerns and confusion about the election, the economy and corporate earnings were reflected in the relatively modest moves by major averages this week, which saw the Dow Jones Industrial Average rise 0.3% while the S&P 500 and Nasdaq Composite slid about 0.1% each.
Bully for Who?The week got off to a harrowing start (for those long) as the Comp tumbled 5.6% Monday and closed below 3000 for the first time since Nov. 2, 1999. Tech stocks wilted in the wake of disappointing earnings from Hewlett-Packard (HWP), while the election morass and OPEC's decision to forego additional production weighed on financial and other economically sensitive stocks. The Dow fell 0.8% and the S&P shed 1.1%. The markets rallied back furiously Tuesday -- the Comp rising 5.8%, the Dow up 1.6%, and the S&P higher by 2.4% -- after a trio of top Wall Street
Eyeing the BearAs reflected by the gurus' call on Tuesday, the general feeling on Wall Street is that Monday's lows will prove to be the "final" bottom investors have long been groping for. But every bottom so far this year has ultimately proven porous. That being the case, prudence dictates we give equal time to those with a far more pessimistic view, which Don Hays, president of Hays Market Focus Advisory Group in Richmond, Va., certainly expressed in a conference call Friday afternoon. Hays began the call by noting an "amazing correlation" between the Nasdaq Composite's performance throughout this year and Japan's Nikkei Index in 1990. Most recently/prominently, Hays noted there was a 32-week period between the Nikkei's peak in late 1989 and when it ultimately broke through the lows established in what he dubbed "phase one" of its post-bubble bear market. Last week marked the Nasdaq's first break of the lows it hit during its first big downturn, or 35 weeks since its peak in mid-March. Additionally, both averages reached previously unmatched valuation heights at their peaks, he said, noting price-to-earning ratios of both markets were justified by talk of "new eras" that made old rules obsolete. If the Nasdaq continues to follow the Nikkei's example, the index will continue to decline for the next six to 10 weeks before it reaches the ultimate bottom of this "second phase" of the bear market, Hays predicted. He forecast the end of phase two will come after a "climactic four-five days that will really knock the stuffing out of the market" and take the Comp to as low as 1800 -- or more than 40% below Friday's close. Hays' draconian market view is accompanied by an expectation the U.S. economy will soon enter a recession and that the world economy faces additional deflationary pressures for several years. Reflecting such pressures, long-term U.S. Treasury bond yields will approach 4% by next October, he predicted. The
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