Fire In Financials

August 4, 2000
Daniel Beighley

Stocks moved marginally higher Friday following an inflation-neutral
employment report in a session dominated by surging financials and weakening
semiconductors. Despite its occasional dips into the red, the Nasdaq managed to
finish up 0.7%, while the Dow and S&P 500 gained 0.6% and 0.7%,
respectively.

The July employment report showed that the economy lost 108,000 jobs while analysts had expected a gain of 71,000. The termination of census workers
accounted for the brunt of the decline.Â

Unemployment remained unchanged at 4.0% which was in line with estimates.
Average hourly wages, however, increased by 0.4%, which is slightly ahead of the 0.3% increase the Street expected.

Volume slumped to 947 million shares on the NYSE and 1.43 billion shares on
the Nasdaq, which was about on par with typical Friday afternoon Summer trading.
Analysts generally remain cautious toward the market, and few see any resumption
of what had been tagged as the Summer rally.

“The main thing is that at some point here, I think investor sentiment
has to change from the recent position of optimism or at least complacency about
downside risk, to the usual concern or over-pessimism that you get at a good
bottom,” said Richard McCabe, Chief Market Analyst, Merrill Lynch.

“That was missing at the bottom in March-April-May, and that’s why I
think we had such a limited rally, and hopefully, this next time down into the
early fall, we’ll get that complacency to change. We’ll possibly have a better
bottom if that works out for a much more durable, if not major advance starting
late this year and continuing on into maybe 2001,” he added.

According to preliminary numbers, the Nasdaq rose 27.48 to 3787.36, the Dow
gained 61.17 to 10,767.75, and the S&P 500 added 10.37 to 1462.93.

The strength in financials and interest sensitive stocks suggested that the
market may be signaling that the Fed’s job may already be complete. With a
multitude of companies warning of slowdowns and a week’s worth of sluggish
economic data, another Fed hike on August 22 could possibly over-cool the
economy into a sharp recession.

Regarding the overall market, Frank Gretz, Market Analyst, Shields & Co.
pointed out that despite all of the breakouts and and subsequent breakout
failures, “the good news has been that the average stock, at least as
measured by the NYSE Advance Decline Index, has held together quite well.”

“Indeed, over the last two months the A/D Index has outperformed the
market averages, especially the DJIA which has gone nowhere,” he added.

Looking to next week, the consumer credit numbers for June will be released
at 3:00 PM ET on Monday, and the Productivity and Costs Report will be released
Tuesday at 8:30 AM ET.

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Fire In Financials

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