Chadzooks! Market Rallies as Miami/Dade Dispenses With Recount

It's a blow to Gore and signals a possible end to the election uncertainty.

Author:
Eric Gillin
Publish date:
Nov 22, 2000 12:29 PM EST

It's been mostly a terrible day for the markets, but Miami/Dade County's announcement that it would halt its planned recount of votes in the presidential election has the major indices rallying.

After Florida's Supreme Court yesterday ruled to extend the deadline for recounts to Monday, the markets sunk today on anticipation of more uncertainty. However, this impasse in Miami/Dade County has people thinking that whatever the deadline, the result of the election may not change, and George W. Bush will be named president.

The

Nasdaq Composite Index

was off 98 to 2775 at midday, trading at a level it hadn't seen since the middle of October 1999, way back when Lou Bega still had a career singing that horribly cloying "Mambo No. 5" song. Today, the Comp hit 13-month lows and was hemorrhaging due to even deeper selling in technology names.

Some of the biggest companies on the Nasdaq were bloodied quite badly. The

Morgan Stanley High-Technology 35 Index

, which tracks the big fishies, was off 3.4%.

Oracle

(ORCL) - Get Oracle Corporation Report

dropped 5.5% to $22.56.

Yahoo!

(YHOO)

fell 6.4% to $38.94.

Sun Microsystems

(SUNW) - Get Sunworks Inc. Report

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fell 4.6% to $81.25.

The

Dow Jones Industrial Average

wasn't that much safer, dropping 84 to 10,409. 22 of the 30 blue chips were decidedly negative, giving an overwhelming advantage to the losers.

Coca-Cola

(KO) - Get Coca-Cola Company (The) Report

was the only bright spot in the entire Dow, with a gain of 7.1% to $59.25 after the soda giant said it nixed a possible deal to acquire

Quaker Oats

(OAT)

. But even that move wasn't very special, considering the company opened the week at $61.44.)

The rest of the blue-chips were cow pies. Financials, transports and manufacturing were all much lower.

J.P. Morgan

(JPM) - Get JP Morgan Chase & Co. Report

was the worst, and along with

Citigroup

and

American Express

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, added a total 35 to the Dow's down side.

General Electric

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Honeywell

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and

Merck

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were all way off, too.

Why is this happening?

Well, people are sitting on the sidelines because of the still-uncertain presidential election and are unwilling to buy beaten-down stocks until conditions look better and something,

anything

, positive happens. Today, this was quite a problem on both the

New York Stock Exchange and

Nasdaq Stock Markets, where volume was light. That means not as many trades are happening, causing exaggerated movements. In this case, that movement was down and the action was pretty severe.

Investors were also reeling from the fear of an economic slowdown. Which brings us to...

The Trouble With Earnings

Forecasts for fourth-quarter earnings dropped with a thud this quarter as company after company -- in every corner of the economy -- ratcheted down their outlooks. According to a report put out last night by earnings tracker

I/B/E/S

, analyst forecasts for fourth-quarter earnings growth for companies in the

S&P 500 have been almost halved to 8.7% from the 16% expectations that existed at the end of last quarter.

Meanwhile, I/B/E/S is projecting that already lowered analyst forecasts for next year will come down even further in the coming quarter. On average, analysts are now expecting 10% earnings growth for 2001, compared with a forecast of 13.8% at the end of last quarter. I/B/E/S thinks this should drop even further, to 6%-8% for next year.

The question, then, is what kinds of earnings are stocks now priced for? The Nasdaq is now 42% below its peak hit in March. The S&P 500 is certainly in better shape -- down

only

18% from its March high. As of yesterday's close, the S&P 500 had a P/E valuation of 23.8.

The other question is, what kind of a premium are investors willing to pay for earnings growth in a slowing economy?

The heady clip of growth in the U.S. economy began to show signs of a slowdown a few months ago as it responded to the

Federal Reserve's six successive interest-rate hikes that were begun last year. While few are fearing an imminent hike in interest rates in the near future, some Wall Streeters worry the Fed won't act quickly enough to cut interest rates if the economy is slowing too abruptly. Without an interest rate cut, they say, the economy might not land on its feet, but will instead stumble into a recession.

Of course, some market watchers are still predicting a rally in stock prices once we know who's going to be the White House winner. Or at least a temporary bounce. Money managers had record volumes of cash on hand last week, and they sure haven't put it back into the market since then.

According to the latest numbers from the

Investment Company Institute

, the mutual-fund industry's professional association, cash reserves at mutual funds are at their highest level since the financial crisis that roiled markets in 1998. Mutual funds had 5.3% of their assets in cash, on average, at the end of the third quarter, compared with 4% six months earlier.

Market Internals

Volume was quite thin ahead of tomorrow's day off. Losers? You want

losers

? Oh, you got losers, buddy.

New York Stock Exchange: 702 advancers, 1,847 decliners, 474 million shares. 37 new 52-week highs, 92 new lows.

Nasdaq Stock Market: 696 advancers, 2,923 decliners, 915 million shares. 8 new highs, 494 new lows.

Most Active Stocks

NYSE Most Actives

Lucent

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General Electric

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Nortel

(NT)

Nasdaq Most Actives

Oracle

(ORCL) - Get Oracle Corporation Report

Portal Software

(PRSF)

Cisco

(CSCO) - Get Cisco Systems Inc. Report

Sector Watch

You know what the dot in dot-com is? (No, not Sun Microsystems' ad campaign.) It's really a black hole! Run! Run! Run for your

life

TheStreet.com Internet Sector Index

, which tracks the remains of the so-called Internet "business," dropped 6.2%. It's really difficult to describe the kind of year that dot-coms had, mostly because there aren't too many words stronger than "washout." At the beginning of 2000, the DOT, as

TheStreet.com's

sector is informally known, was at 1154.45. Yesterday, it closed at 415.57. That's a drop of 64%.

Forget the chin. Technology-related issue took it on the

face

. Wireless, peripherals and telecommunications stocks were much, much lower. The

Philadelphia Stock Exchange Wireless Telecom Sector

dropped 4.2%, while the

American Stock Exchange Disk Drive Index

fell 3.1% and the

Nasdaq Telecommunications Index

fell 4.5%.

Outside of tech, the picture wasn't that much better. Brokers, insurers and bankers, the heart of financial stocks, were all lower. The

Nasdaq Financial 100

fell 3%.

Hey! Hey! Who wants good news?

If you own gold stocks then you're a pretty happy camper, huh? After a pretty rough year, the

Philadelphia Stock Exchange Gold & Silver Index

has been on an absolute tear lately. It gained 2.6% today. This is the third straight day of gains for the goldies, which have seen renewed interest as a safe play among all this uncertainty.