| Higher
revenue guidance by Intel couldn’t keep stocks out of the red as the
Dow closed down 0.8%, the S&P 500 lost 1%, the Nasdaq gave up 0.7%
and the Russell 2000 lost 1.8%. Intel jacked up its Q3 revenue
guestimate to a range of $7.3 to $7.8 billion. The old range was $6.9
to $7.5 billion, and the company’s optimism was enough to push Intel
higher by 10%. Enthusiasm waned, however, with INTC closing up less
than 4% on the day. Nonetheless, the stock is a double over the last 6
months. CFO Andy Bryant called the news a “pleasant surprise.” The
revenue range, if attained, would be well ahead of third quarters for
the last two years, but well below the $8.7 billion produced in Q3 2000.
Despite
today’s setback, stocks ended the week higher, with the Nasdaq gaining
3.7%, the S&P 500 and Dow adding less than half a percent, and the
Russell 2000 gaining 2.9%. The SOX soared 11.4% and internet stocks
picked up 6%. Bank stocks lost 2% on the week while gold stocks lost
0.8% on slightly higher spot gold prices. Treasuries gained back some
lost ground with the 10-year closing at 4.46% vs. 4.53% a week ago.
Earlier
this week semiconductor equipment bookings came in 5.7% higher for
July. That’s the first up month since March. Still, orders are well
below year-ago levels.
Schering-Plough
fell more than 9% after warning that earnings would disappoint through
2004 and that it would sack 1,000 employees.
Yesterday,
the Conference Board’s index of leading indicators advanced for the
fourth month in a row with half of the components showing improvement.
These were the interest rate spread, the money supply, average weekly
initial claims for unemployment, vendor performance, and stock prices.
However, the components that fell included average weekly manufacturing
hours, index of consumer expectations, building permits, manufacturers'
new orders for non-defense capital goods, and manufacturers' new orders
for consumer goods.
Random walk
A shortage of choices
Stocks are back.
Actually, Stocks Are Back! Tthat’s the news according to the September issue of Smart Money.
After all, the S&P 500 is in the black year-over-year and up 25%
off the March lows. Since March, Internet stocks are up 53% and chip
stocks up 57%. Tuesday, the Dow hit a new 14-month high.
Stocks Are Back!
But
are they back for good? Can Alan Greenspan actually go down in history
as The Man Who Kept Blowing Bubbles Until Things Worked Out OK? At
least one interviewee in the Smart Money story had no opportunity to weigh the evidence. “I
don’t have a choice but to invest,” the 51-year-old said. “If I don’t,
I won’t be able to retire. I’m not necessarily perfectly at peace with
it, but I feel like I don’t have any choice but to be in the market.”
That’s an amazing thing to say for a person worried about retirement. After all, she could have said any of the following:
“I don’t have any choice but to save more money.”
“I don’t have any choice but to stop buying six dollar lattes.”
“I don’t have any choice but to investigate the lower cost of living in Sub-Saharan Africa.”
Instead
she said, “I don’t have a choice but to invest.” The meaning of the
word “invest,” like the word “thong,” has changed over the years.
“Invest” used to mean “to build a suitable portfolio of stocks and
bonds and (believe it or not) short term investments, and maybe throw
in some gold if you actually want to touch something.”
Now
the word invest means “to buy stocks hand over fist, especially those
with the charts that run left to right on Yahoo Finance.”
Likewise, thongs are no longer worn on the feet.
Does everyone feel such pressure to “invest”? Judging from mutual fund inflows, maybe so. But according to a survey in the same Smart Money
article, at least investors are putting some thought into their
investing decisions. They’re putting some thought into them, they’re
just not acting on those thoughts. For example, 77% of respondents
agreed that stocks that pay dividends are looking better thanks to the
new tax laws. Even 68% figured that a recurring dividend stream should
give them more confidence in a company’s financial wherewithal. But Smart Money says that less than half of investors are more likely to buy dividend-paying stocks today than three years ago.
Why? The way this market’s moving, maybe they have no choice.
Increasingly,
homeowners have no choice about whether to refinance. With interest
rising as fast as stock prices, the refinancing index (a measure of
refi applications) has fallen from its May peak of 9,977 to 2,756 on
August 15. The index is now about where it was 13 months ago when the
year-long refi supernova was just getting underway.
With
the in-home ATM out of working order, it’s up to housing starts to
juice the economy. And juice they have. Single-family housing starts
came in at a 1.5 million annual rate in July. That’s the fastest pace
since the Carter presidency. For the record, single-family housing
starts have been in the 1.4 million range this year compared to 1.35
million last year and 1.27 million in 2001. Starts averaged 1.3 million
a month in 1999. Housing starts, as Irving Fisher might say, seem to be
at a permanently high plateau.
And that’s just the starts. According to Economy.com, it looks like this year will mark the 13th
consecutive year of rising home sales. That anything besides the size of
7-11 Big Gulps could expand for 13 years in a row is remarkable. It’s
also remarkable that housing and related activities contributed a
whopping 1% to Q2 real GDP growth – according to Economy.com. And that doesn’t include all those big screen TVs and other consumer expenditures that come courtesy of cash-out refis.
Will
it go on forever? Who knows. What we do know as that as recently as
1995, starts came in around 1 million and that not that long ago,
spammers didn’t know how to spell “refiance.”
Meanwhile, there’s a buying panic in many parts of the country as homeowners rush to close on their dream homes before they get more expensive. What can they do? They don’t have a choice.
According
to the American Bankruptcy Institute, 1.61 million Americans took of
the choice of bankruptcy in the year ending June 30. That’s a world
record and compares to 1.29 million for the year ending 12/31/99. The
record number of bankruptcies came during the biggest refi boom in
world history and with unemployment rates high, but not sky-high. What
happened? Marianne Culhane, the plain-spoken resident scholar at the
Institute explains it this way: “Consumers have been carrying record
levels of debt, and that makes them more susceptible to job losses."
A
person who follows the technology market instead of watching re-runs of
Law & Order every night, might tell you Hewlett-Packard’s
disappointing report this week says more about the company than about
the industry, or tech in general. After all, Dell’s sales just shot up
16% versus the year-ago period. But it wasn’t just computers that
dragged down up the results. Revenue in consulting and “integration”
(whatever that means) was down 15% year-over-year thanks to project
deferrals and continued overcapacity in the consulting market. If
consulting is slack, what can be tight? And today we have the WSJ
quoting Gartner’s forecast of 3% annual sales growth for makers of
computers, printers and related equipment for the next two years.
Networking equipment makers aren't likely to grow more than 4%, Gartner
predicts. Regardless tech is the investment of choice. The Wall Street Journal has noticed that profitless tech stocks have put on an especially impressive performance lately. According to the Journal: “Shares of Equinix
Inc., a little company that runs hubs for Internet traffic - and that
has never made money - have roughly quadrupled since January. GSI Commerce Inc., which helps big retailers manage Web-based sales, and is also without profits, has risen more than 600% since March.”
Why all the enthusiasm?
Maybe investors don’t have a choice. | 
