Whispers From a Trendless Market
A YEAR AGO STOCKS RALLIED IN the classic fashion of a cyclical bull market. For most of 2004, the rally has been of the tennis variety -- lots of back and forth, with no conclusive points scored.
In the past few weeks, the tennis match between bulls and bears has shrunken to the dimension of ping-pong, with stocks going only a short distance before being spanked back in the other direction. As market watchers can now attest, there's a reason that ping-pong is not one of the bigger spectator sports.
After another nearly static week, the major indexes have spent the three weeks since Memorial Day in a sliver-thin range. The Standard & Poor's 500 Index hasn't even traveled as much as 3%, low to high, this month.
Just to round out the portrait of boredom, trading volume has slid some 10% from a year ago on the New York Stock Exchange and closer to 20% on the Nasdaq. As if the market needed something else to sap interest in the proceedings, the U.S. Open golf tournament began Thursday within roadster-driving distance of Wall Street, and few were the traders or fund managers who lacked access to the course.
A gentle lift Friday brought the major indexes within a rounding error of breakeven for the week. The Dow rose 6 points to close at 10,416. The S&P gave up a mere point and change to reach 1135. The Nasdaq, mildly pressured by a handful of earnings reports that didn't meet traders' fondest hopes, lost 13 points to hit 1986.
The gluey pace of activity lately means that, if the market is to hold to form and move in advance of widely anticipated events, it will need to do so soon. June 30 is the date circled in red, as the deadline for the turnover of authority in Iraq and the Federal Reserve's next decision on interest rates.
Some of the suspense has already been drained from these events. The turnover of control in Baghdad is increasingly being viewed as a formality that will happen in some form. And Fed officials have jawboned the market into an overwhelming consensus that short-term rates will rise by one-quarter of a point this month, representing the first of many small increases.
The bond market has stabilized in the past three weeks, with the 10-year Treasury yield hovering around the current 4.71% level all month. Consumer price data arrived a bit higher than formal forecasts on Tuesday, but bond traders were clearly positioned for a scarier number and Treasuries actually strengthened on the news.
In this way, the markets are expressing comfort with the expected rate moves. This cozier atmosphere has soothed investors but also sets them up for a bigger shock if events stray from the agreed-upon script.
The optimists' take on the market's stillness goes something like this: The indexes absorbed a storm of selling last month as oil prices and Middle East violence dominated headlines. They bounced off important levels as soon as the selling got extreme, reaffirming the underlying solidity of the market.
The sideways motion in stocks, the bulls continue, are allowing powerful gains in corporate earnings to catch up to share prices, making valuations more reasonable and better able to withstand the earnings-multiple compression that may come with higher rates and rising inflation.
The short-term traders in this camp are looking for a foray toward the 2004 highs (about 3% above today's levels on the S&P) once geopolitical and oil-price worries ease (whenever that may be). The round-number crowd of sell-side strategists generally thinks that another 10% upside to S&P 1250 is a lock, either before or after the election.
The skeptics begin their case by pointing to the very placid consensus that confidently believes the thesis laid out above. They detect a dangerous complacency in the common opinion that Fed tightening won't hurt stocks. Earnings growth rates are decelerating, as are measures of economic momentum.
The very inability of stocks to get a lift this year despite stellar fundamentals, to this group, is a bearish signal in itself. And the light volume accompanying the latest bounce, they say, speaks to a dearth of committed buyers.
If this sounds like a debate over semantics and shades of gray rather than a true conflict over deeply held principles, it may be because a half-year in a noncommittal market has given everyone enough time to develop self-doubt.
As one close observer of the market and of investor attitudes said last week, "Bullishness and bearishness right now are both a mile wide and an inch deep."
If that's an accurate reading of the situation, then any eventual sharp move up or down could be exacerbated by panicky reactions of either short sellers or nervous long players. Bulls can already be heard talking about how a run to the yearly highs in the indexes would scorch short sellers and force them to chase stocks higher.
Wall Street's reaction to the earnings period now coming into sight could offer some clues about which world view has more merit.
Last week two trends from the first-quarter reporting period were echoed. The number of companies delivering outright profit disappointments has been exceedingly low. Yet this only serves to set investors' sights higher than the published forecasts and often results in selling of stocks after good, but not fabulous, results.
Thomson First Call reported Thursday that only 36% of the 202 S&P 500 companies that have previewed second-quarter earnings have said they'll fall short of estimates. Meanwhile, 45% said they'll beat forecasts. It's rare for upside previews to outnumber downside warnings, and it indicates that analysts haven't quite caught up to the fundamentals.
Yet there were some harsh reactions to some actual earnings reports that looked strong last week. These included those from tech firms Oracle, Adobe Software and Red Hat, which all were met with selling after beating forecasts.
Such examples are mere anecdotes, coming weeks before the rush of profit reports begins. But in a trendless market that relinquishes its secrets reluctantly, these may be whispers worth listening to.
Web Stocks Soar, Chips Dip
Coming into the year, a scenario being spun by some market watchers was for a self-reinforcing burst of technophilia to hit the Nasdaq, attendant with hyperventilating over Google's planned public offering.
A Google mini-mania in the media did arise around the time of its April IPO filing and no doubt will regain intensity when the deal approaches. Yet the Nasdaq and tech shares in general have hardly budged since then.
A more localized rush of Google-related excitement, though, seems to have energized the shares of Google's leading Internet peers, eBay, Yahoo! and Amazon.com. Since the third week in March, when reports began to circulate that Google would need to file financial documents soon, these leading dot-com stocks have taken wing. eBay is up 33%, Yahoo! 48% and Amazon 24% from that point. In the same period, the Nasdaq has gained less than 5%.
Perhaps investors were reminded by Google's impressive financial record just how profitable a dominant online business can be. Or, possibly, nostalgia for the days of widely coveted tech IPOs got investors in the buying mood. Enthusiasm for online advertising growth and continued gains in the online share of retail sales haven't hurt, either.
These 'Net names, though, also seem to be gaining favor with otherwise anxious tech-focused investors because of what they're not. Most starkly, they are not semiconductor stocks.
Semis are capital intensive, while dot-coms are the most virtual of middlemen, drawing dollars from the online ether. The chip industry is approaching the peak of the latest in what always turn out to be violent multiyear cycles, whereas Internet names are a long-term, secular growth story. Inventory buildups, nasty price deflation -- these things periodically bedevil semi stocks but don't quite apply to the so-called Big Three of the 'Net.
So it is that the Internet stocks' acceleration lately has coincided with a nasty pullback in semis. Since the Philadelphia Semiconductor Index, or SOX, topped out on April 5, it's lost 12% of its value. The Merrill Lynch Internet HOLDRS, a traded basket of 'Net stocks dominated by the Big Three, are up 12% in the same span. Technical analysts are generally troubled by the sloppy action in semis, but the dot-com charts betray consistent strength, for now.
It hardly bears saying that, after such a skein of outperformance -- helped in good measure by strong financial results -- the Big Three stocks are stretching toward the upper end of their recent valuation range. EBay sits at 73 times expected 2004 profits, Yahoo! 99 times and Amazon 48 times.
Valuation, of course, has rarely helped much in playing these stocks, even if it hints at how much risk they carry in the event of a severe turn in sentiment.
EBay, Yahoo! and Amazon looked expensive a year ago, and the market has carried them straight up. A lot of that was because earnings estimates were way too low a year ago. EBay, for instance, is on track this year to earn almost twice what was forecast for 2004 a year ago.
Naturally, they look that much more expensive if their earnings are adjusted for employee stock-option expenses, which may have to happen starting next year. Nearly all of Amazon's and Yahoo's earnings last year would have fallen away if options were counted. And eBay's profit would have turned into a loss. The market clearly knows this and, just as clearly, doesn't much care right now.
Forecasts of operating profits have steadily inched higher for the 'Net leaders, though they haven't leapt ahead. Smith Barney analyst Lanny Baker notes that most of the 'Net stocks' gains this year represent expansion of earnings multiples rather than higher official profit expectations. This likely indicates building expectations of further increases in earnings forecasts through the second half of the year. Those hopes will have to be met if the stocks are to continue performing well.
The Calm Before? Stocks jogged in place again last week, unmoved by an uptick in inflation, as investors await the June 30 Fed meeting. The Dow rose 6 points, to 10,416.
There's some truth to the argument that such dominant, impossible-to-replicate franchises as eBay, Yahoo! and Amazon can't be valued strictly on current price-earnings multiples. But it is worthwhile to see how the stocks are valued relative to their own history.
They're nowhere near as wildly overvalued as they were at the manic market top in 2000. But Baker tracks these stocks' price-to-cash-flow multiples relative to their own history and compared with those of other Internet stocks. By these measures, they're entering the rich end of their typical range.
The Big Three trade at nearly 35 times expected earnings before interest, taxes, depreciation and amortization. That's almost three times the Ebitda multiple of the rest of the Internet sector, a relative valuation level at which the Big Three's share performance has faltered more than once in the past year.
Those pullbacks in the stocks -- sharp but brief -- represented good short-term buying opportunities, though no one can say for how long the tape will be so forgiving with these names.
In addition to Google's anticipated IPO, a growing backlog of other Internet companies looking to go public has built up as the Nasdaq reprises its late-'Nineties role of enriching computer-science majors faster than the NFL draft mints jock millionaires.
The new-offering game tends to fuel the investor excitement for a while, until supply overwhelms even hopped-up demand. Whether or when that may happen again is anyone's guess.
Game of Chicken
Getting a fix on the tech sector generally requires a similarly delicate accounting of investor sentiment, fundamental momentum and tactical guesses as to when high valuations may re-exert a downward pull.
UBS technology strategist Pip Coburn attempts such an analytical dance weekly. He discarded a long-running bearish stance in the spring of last year to call for a "supernova rally" that would drive the Nasdaq above 2000 before succumbing to a collapse in 2005. (As all cosmology fans know, supernovas are spectacular stellar events that precede the formation of black holes.)
He now thinks a summer or fall rally in tech will represent a final thrust of this melt-up phase. For it to happen, he says, several things will probably have to occur. Macro problems such as oil prices and turmoil in Iraq must recede a bit from the frontal lobes of investors. Corporate tech spending must convincingly resume growing (he thinks it will.) And earnings estimates must stay positive, which in the short term seems a decent bet.
It's a plausible scenario, even if -- by Coburn's admission -- it's by no means a lock.
Yet to position for such an outlook is, as he says, akin to playing a game of chicken -- a game many professional investors who are judged by relative performance feel compelled to play.
But there are other approaches. "For those money managers who are not chasing quarterly performance, are risk-averse or are willing to tolerate missing the last leg of the rally," he recently told clients, "we'd head for the exits now and wait for the all-clear sign from Warren Buffett."
From the Sausage Factory
The corporate-tax bill passed by the House of Representatives prompted plenty of commentary last week.
It was alternately derided as a giveaway to well-connected industries and lauded as a rare stroke of fairness in taxation. One congressman likened it to a pig dolled up with lipstick, while a taxpayer advocate preferred the metaphor of a fatted calf.
What generated almost no comment at all was a tiny provision of the bill that would broaden the interest in publicly traded limited partnerships by making it easier for mutual funds to own these income-oriented securities.
Also known as master limited partnerships, these vehicles distribute all their profits to shareholders, making them popular with yield-oriented investors.
Most of the existing MLPs are in the energy production or distribution, such as natural-gas pipelines. There are also a handful of real-estate and mortgage-finance partnerships and the occasional operating company. The latter group includes asset manager Alliance Capital Management and amusement-park operator Cedar Fair. A complete list of publicly traded partnerships is available on
www.ptpcoalition.org.The shares of these partnerships didn't react much to the passage of the House bill, which still must be reconciled with a Senate version. Given the minimal tax-revenue impact of the measure, observers are betting that the provision will likely make its way into the final law.
Over time, mutual funds are expected to find their way to these instruments, which could only work to the advantage of investors who get there first.
市场是否会延续平静走势？
一年前，美国股市的行情表现出典型的周期性牛市的特点，而2004年迄今为止的大部分时间里，股市的走势却让人彷佛置身网球场，只见到指数像网球一样忽前忽后地拉锯，却拿不到决定胜负的关键得分。
但在过去的几周里，牛、熊之间的网球赛已经变成了乒乓球赛，指数像乒乓球一样刚刚运行很短距离就被挡了回来。市场观察家现在可以证明，为什么乒乓球并不属于观众比较多的比赛项目了。
在经过几乎静止的一周之后，从阵亡将士纪念日(5月31日)以来的3周里，主要指数一直在一个狭长区间内波动。其中标普500的涨跌幅从未超过3%。
交易乏力的情况从交易量上即可看出大概，比如纽约证交所的交易量较一年前下降了10%，而那斯达克市场交易量的跌幅接近20%。好像市场需要一些其他的事情来排解情绪，上周四开幕的美国高尔夫公开赛离华尔街一箭之遥，交易员和基金经理几乎没有缺席的。
上周五市场的温和上扬使全周得以基本持平，道琼斯指数微涨6点，收于10,416点；标普500指数跌1点，收于1135点；由于一些上市公司公布的收益结果弱于预期，给市场带来了一定的压力，那斯达克综合指数跌13点，至1986点。
近来交易活动的胶著状态表明，如果市场要在人们早有预计的重大事项发生前形成走势并有所变动，那它应该抓紧行动了。即将到来的6月30日是一个值得关注的日子，那一天伊拉克将举行权利移交，而美国联邦储备委员会(Federal Reserve，简称Fed)当天也将召开利率政策会议。
关于这些事项的一些悬念已逐渐消失。越来越多的人认为，伊拉克控制权的移交只是某种形式，而Fed官员的讲话也让市场人士普遍预计，它会在这个月加息25个基点。
过去3周来，债券市场一直非常平稳，10年期美国国债收益率全月一直在目前4.71%附近徘徊。上周二公布的消费价格指数略高于正式预期，但由于债市交易员此前的预期更高，因此，数据公布后，国债反而有所上扬。
目前市场对预计的加息表现出了很坦然的心理。这种温和的气氛使投资者非常欣慰，但他们也为势态偏离预期轨道作好了充分的思想准备。
乐观人士认为，市场的平静可以这样来理解：在油价和中东暴力冲突的话题主导市场的情况下，股市上个月已吸纳了大量抛盘。随著抛盘达到极点，主要指数随即试探重要阻力位，再次显示出市场的内在实力。
看涨人士人仍认为，股市的窄幅波动将使公司收益强劲增长的因素得以反应在相关股票的价格上，从而使它们的股值更合理，并能在利率上调、通货膨胀加剧的情况下更好地承受本益比下降的压力。
看涨派中的短线交易员预计，一但市场对地缘政治局势和油价走势的担忧有所缓解──不论这一天何时到来，股市指数都将朝著年内高点挺进。以标普500为例，其高点较目前点位高3%。卖方策略师大多认为，标普500最多还有可能再上涨10%至1250点，这一高点在大选前或大选后都有可能出现。
而持怀疑态度的人首先对相信上述理论的普遍观点发难。这派人士认为，预计Fed加息不会伤及股市的普遍看法透露出一种危险的自负。他们认为，加息后企业的利润增幅将放缓，而利润增幅是衡量经济活力大小的重要指标。
在这派人士看来，今年在基本面相当强劲的情况下，股市仍无力获得提升，这一点本身就是一个看跌信号。而且他们认为，最新一轮反弹行情中交易量偏低的情况也表明，市场缺乏坚定的买家。
如果这些表述听起来像是语义上的纠缠和暧昧不清，而不是真有什么分歧，这或许是因为，市场半年多来不晴不阴的状况足以让每个人都开始怀疑自己。
就像一位关注市场和投资者态度的观察人士上周说的那样，目前市场上看涨和看跌的意见都很普遍，但也都不很坚定。
如果这个总结准确的话，那么，如果市场最终出现剧烈的涨跌，作空方或作多方的恐慌性交易将使局势进一步加剧。现在已经可以听到看涨人士谈论说，股市如升至年内高点，将令作空方如何如何焦灼，并迫使他们追高股价。
华尔街对即将到来的收益期的反应或许能说明，哪一种观点更有说服力。
上周，一季度业绩报告期传递出的两点趋势得到了回应。一是，一季度业绩彻底令人失望的公司数量相当少。不过，这只会让投资者抬高预期，并且经常导致在公司发布良好但尚未好得出奇的业绩后股票遭到抛售。
Thomson First Call周四报导说，在它调查的202家预测了二季度业绩的标普500指数公司中，只有36%的公司说他们的实际业绩可能会低于预期。与此同时，有45%的公司说他们会好于预期。这种预计好于预期的公司数量多于弱于预期的现象还非常少见，它表明，分析师对公司基本面的情况没有及时地全面掌握。
然而市场对一些实际收益报告看起来很不错的公司反应“刻薄”的情况上周又发生了，比如甲骨文(Oracle)、奥多比(Adobe Software)和Red Hat，这些公司在业绩超出预期的情况下仍遭到抛售。
当然这样的故事并不多，而且，现在离大量公布收益报告毕竟还有好几周。但是，在一个杂乱无章且很不情愿放弃神秘感的市场上，这些低声细语的故事也许很值得屏息一听。
