Why Interest Rates Still Favor Stocks
Stocks began the week to the upside
thanks in part to Fed Chairman Alan Greenspan, who commented in Singapore that
he saw few signs of inflationary pressure. Volume was extremely light as
summer-like volume accompanied the modest rise in share prices.
Biotechs, financials and cyclicals
paced the day’s gains as the Dow rose 0.7%, the Nasdaq added 0.3%, and the
S&P 500 gained 0.5%. The Dow was the top-performer of the three major
indexes as it posted its third straight win.
Volume dried up as a mere 1.20 billion
shares traded on the Nasdaq and just 769 million shares traded on the NYSE.
While traders and investors remained
on the sidelines, apparently wary of taking on new positions, some analysts
reiterated that the interest rate scenario still most certainly favors stocks.
“The
economy is weak. Increases in jobless
claims, and the decrease in the NAPM measure of industrial activity, suggest
future weakness in consumer and capital spending is likely.
This will encourage the Fed to cut rates again at the June 26-27 FOMC
meeting. Fed funds rates suggest a 100%
chance of a quarter point rate cut,” said Paul Rabbitt, President,
RabbittAnalytics.com.
“The bear is over.
Do not fight the Fed. Our monetary
regression model is the most favorable for stocks in years.
This small correction is a buying opportunity. Investors have discounted
stocks 3-7% in the past two weeks. As a
result, many equities are oversold and stocks have retraced old ground,
effectively going nowhere,” he added.
Top sectors included biotechnology
(
$BTK.X |
Quote |
Chart |
News |
PowerRating),
up 2.9%, oil services
(
$OSX.X |
Quote |
Chart |
News |
PowerRating), up 2.1%, integrated oils
(
$XOI.X |
Quote |
Chart |
News |
PowerRating),
up 1.5%, and chemicals
(
$CEX.X |
Quote |
Chart |
News |
PowerRating), up 1.0%.
On the downside were Internets
(
$GIN.X |
Quote |
Chart |
News |
PowerRating),
down 1.0%, airlines
(
$XAL.X |
Quote |
Chart |
News |
PowerRating), down 1.5%, and semiconductors
(
$SOX.X |
Quote |
Chart |
News |
PowerRating),
down 1.9%.
According to preliminary numbers, the
Dow rose 71.57 to 11,061.98, the Nasdaq gained 6.53 to 2155.97, and the S&P
500 added 6.45 to 1267.12.
Biotech winners leading the BTK
included Bio-Technology General
(
BTGC |
Quote |
Chart |
News |
PowerRating), up 10%, Vertex Pharmaceutical
(
VRTX |
Quote |
Chart |
News |
PowerRating),
up 8%, Protein Design Labs
(
PDLI |
Quote |
Chart |
News |
PowerRating), up 5%, and MedImmune
(
MEDI |
Quote |
Chart |
News |
PowerRating), up 4%.
Banks were generally strong, and among
better performers was Wells Fargo
(
WFC |
Quote |
Chart |
News |
PowerRating), which rose 1.03 or 2% to 48.35 to
its highest level in over a month.
In
the big-cap tech arena, Cisco Systems
(
CSCO |
Quote |
Chart |
News |
PowerRating) gained .88 or 4.6% to 19.73.
Volume, however, was half of it normal level.
Among big winners was recent IPO
Simplex Systems
(
SPLX |
Quote |
Chart |
News |
PowerRating), which rose 10.20 to 38.20 on heavier-than-average
volume. The company announced it has partnered with Toshiba to design chip
systems.
Dow winners were Caterpillar
(
CAT |
Quote |
Chart |
News |
PowerRating),
up 1.6%, Exxon Mobil
(
XOM |
Quote |
Chart |
News |
PowerRating), up 1.8%, and Johnson & Johnson
(
JNJ |
Quote |
Chart |
News |
PowerRating), up
2.2%.
Biggest Dow losers included Wal-Mart
(
WMT |
Quote |
Chart |
News |
PowerRating),
down 1.5%, McDonalds
(
MCD |
Quote |
Chart |
News |
PowerRating), down 1.5%, and Intel
(
INTC |
Quote |
Chart |
News |
PowerRating), down 1.0%.
Looking ahead, the second
quarter productivity report will be released on Tuesday at 8:30 AM ET. Analysts
expect to see a decline of 0.1%.