To Bull Or Not To Bull
Market
Trend: Unclear (Strong Near-Term Upward Bias)
Best
Sectors: Old Economy Cyclicals, Semiconductor
Manufacturing
Stocks
of the Week: Long MKSI and ASMI Redux
Barron’s
Watch: Long Roxio (ROXI)
The Broad Market
Outlook
Glassy-eyed wanna-Bulls searching for a bottom lo these many months may have actually
finally found one. Much of the
economic data continues to flash signs of recovery, and many analysts believe the
question now is simply how robust the recovery will be. Let me be au contrarian for a minute.
At
this juncture, this is primarily an inventory-led recovery. All those businesses that got caught with their inventories up when the
recession hit, first worked them off and now are rebuilding them in anticipation
of the upturn. Not surprisingly,
the supply side of the economy is picking up — as witnessed by the blowout
purchasing manager’s ISM index numbers that hit last Friday to give the market
a bounce. Â
The
demand side could, however, still be problematic. Consumer confidence is in a downtrend — and remember, consumption is
almost two-thirds of GDP. Moreover,
business investment in several key sectors (e.g., telecom, broader tech) remains
squirrelly as over-leveraged, Enron-itised, “once bitten, twice shyâ€
executives remain on the sidelines.
In the
dreaded “double dip†recession scenario, faltering demand leads to an
inventory overhang that triggers a new round of recessionary layoffs and
production cutbacks. It ain’t
going to be necessarily so — but that’s the danger.
And
don’t forget Europe. If the
malaise spreads there, it will be hard for the globe to begin hitting on all
cylinders.The Macro Data — Last Week
This
was about as classic a macrowave investor week as it gets. Falling consumer confidence on Tuesday wrapped like an Albatross around
Mr. Market’s glum neck. A
positive utterance by Fed Chairman Greenspan triggered a rally on Wednesday only
to be dashed by rumors of troops in Iraq. And the aforementioned blowout numbers for the ISM or purchasing
manager’s index triggered Friday’s boomlet. Random walk? Not.The Macro Data — The Coming Week
This
will be Sherlock Holmes’ “dog that didn’t bark.â€Â The absence of any major data until the end of the week coupled with
another cheerleading session from Fed Chairman Greenspan on Thursday should give
the market time to exhibit a follow through from Friday’s fling.
Wednesday’s
factory orders should reinforce the upward trending purchasing manager’s
index. Thursday’s quarterly
productivity report should continue to show robust productivity. But note, here, that recessions can artificially inflate productivity, so these numbers are not to be trusted now. Still, any negative surprise would put a damper on the bull’s mood.
The
Big Kahuna — aka the jobs report — surfs on Friday. The consensus estimate shows the unemployment rate rising from 5.5% to
5.8%. Anything better than that
could spark another big Friday bump.
Barron’s Watch
Come every Monday after the weekend
publication of Barron’s, stocks go up or down on the coverage. For the second week in a row,
Roxio
(
ROXI |
Quote |
Chart |
News |
PowerRating) gets a
Barron’s boost,
this time from stock analyst Paul Sonkin. What
is worrisome here is that despite favorable coverage last week, Roxio really
showed no follow through.
Macroplay of the Week
While
autos and housing lead the recovery in the Old Economy, semiconductor
manufacturing will be the lead dog in the Tech sled.
MKS Instruments
(
MKSI |
Quote |
Chart |
News |
PowerRating) and ASM International
(
ASMI |
Quote |
Chart |
News |
PowerRating). The betas are scary — but high risk is high reward. Just be careful.
TIP:
As you track MKSI and ASMI, watch
KLA-Tencor
(
KLAC |
Quote |
Chart |
News |
PowerRating), too. It’s a much bigger cap in the same space and likewise is on a tear.
Â
If you
have a favorite macroplay you would like me to feature in this column, send me
an e-mail at pnavarro@uci.edu or go
directly to my web site https://www.peternavarro.com.Â
I’d love to hear from you.Â
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