SAN FRANCISCO -- The King is dead. Long live the Queen.
Think about it. How many times has
tried to quell the stock market, either through word or action, and failed (miserably in some cases)? Conversely,
Abby Joseph Cohen
gives a little tweak to her recommended portfolio and stocks take a powder. Give that lady a scepter.
Of course, it wasn't as if stocks crumbled
Tuesday ; the
fell nearly 90 and the
lost almost 125 in another session of relatively modest volume. A session hardly worth having a royal snit-fit about.
Then again, it wasn't as if Cohen -- who was unavailable for additional comment -- issued a harshly bearish decree. The chair of
investment policy committee cut her recommended exposure to stocks by 5% to 65%, while upping cash by the same amount. Cohen's model portfolio now looks like this: 65% equities, 27% fixed income, 5% cash and 3% commodities.
Citing "a consequence of relative performance," Cohen also announced she was no longer recommending an overweight exposure in technology or consumer staples. Financials are now the largest overweighted sector in her portfolio, relative to the
, with pharmaceuticals, selected basic materials and energy-related stocks the other groups with significant weightings.
"When the No. 1 strategist takes money out of stocks, it makes a statement," observed another Wall Street strategist. "But if she was turning negative on the market, she wouldn't be overweighting financials."
Cohen also maintained her year-end target for the S&P 500 at 1575. Meanwhile, the rival strategist observed her reallocation was "well planned," in that it was issued during the final week of the quarter. The effect of window dressing minimized the impact of the call, he argued.
No doubt that pleased her majesty, err Cohen.
In Good Company
Along with "buy the dips," one of the most accurate cliches in recent years has been "don't short a dull market." About 950,000 shares traded on the Big Board on Tuesday and less than 1.5 billion in over-the-counter action. That's huge by historical standards but (again) pretty boring compared with recent activity.
Yet Cohen is far from alone in thinking the short term could be dicey for the market's leadership (technology stocks, that is). And I'm not talking about the steadfast bears.
"High-tech stocks are tired," said Tony Dwyer, chief market strategist at
in New York. "The fundamentals are great, but stock prices are already reflecting what the fundamentals are saying."
The psychology of the market is a fear of losing the wealth that's been created, he said, rather than a fear of missing an opportunity or losing money outright.
It sounds a bit counterintuitive, but Dwyer argued the fear of losing wealth is "much more dramatic" than the fear of actually losing money. That's because it's harder to go back to eating peanut butter and jelly after you've gotten used to filet mignon, he said (making no mention about whether the crusts were cut off the PB&J or how the filet was cooked).
Eschewing the gastronomic allusions, Paul Rabbitt, president at
in Hermosa Beach, Calif., reached a similar conclusion about tech stocks as Dwyer did (and, by inference, Cohen).
"I think this market is ripe for a severe correction," Rabbit said, suggesting the Comp has about 5% upside and 15% downside risk in the next 90 days. "We're about as overbought as I've ever seen," based on the number of stocks trading 200% -- or more -- above their 200-day moving averages.
That kind of extension by literally hundreds of stocks is unheard of, he said, suggesting those names are the most likely to be sold in a correction.
The overbuying has, of course, been concentrated in the high-tech favorites such as
I mention those names, specifically, because they're all stocks Rabbitt has recommended in the recent past and still believes are good companies. But "there are times when you take profits regardless -- like when they've skyrocketed," he said. "I wouldn't buy any right now."
What's interesting about Dwyer and Rabbitt's similar conclusions is their vastly different take on an issue that could have a big sway over the markets. Namely, the
Dwyer believes the Fed is "nearly done tightening," noting inflation remains subdued -- except for oil prices, and Greenspan downplayed their impact on Monday. Given that outlook and the "value discrepancy" between New and Old Economy stocks, he foresees a forthcoming rally for blue-chips that will take the Dow as high as 12,800 in the near to intermediate term, even as the Nasdaq declines to as low as 4300.
Rabbitt, meanwhile, sees the need for another 75 basis points of tightening from the Fed and believes an
rate hike will be the "trigger" for the severe correction he's forecasting.
Athough not totally out of the market's consciousness, it's hard to argue a rate hike before the Fed's May meeting would be good for stocks of any kind. Still, it might be the only way for Greenspan to reclaim the market's throne.