|
Get used
to white knuckles as investors ponder inconclusive
evidence about the economy, and the stock market refuses
to free investors from worry.
Last
week's three-day, 550-point plunge in the Dow
industrials had investors on edge, and looking for
direction, to start the week. Tuesday looked like it
might provide some relief: Early in the day, bolstered
by some improvement in the Consumer Confidence Index,
the Dow climbed more than 80 points. But it turned down
in the afternoon, as edgy investors used the upturn as a
reason to sell, and finished with a slight loss.
Investors
would like assurances that they didn't overpay for
stocks in the 65 percent rally in the benchmark Standard
& Poor's 500 index from the March low through the
end of last year. But the signals are mixed.
"This
market is strongly divided, with bulls who think we're
fine and bears who feel that we're not going to continue
to grow," said
Randy Cass
, founder of First Coverage, a
Boston
firm that tracks market sentiment of institutions buying
and selling stock. "Both believe there is data that
supports their position, but the data is ambiguous, and
neither side can point to irrefutable data that back
them up."
Cass runs
through the debates First Coverage has been following
between brokers and institutions: "Health care
reform: Dead or slowed?
Ben Bernanke
: In or out? (
Paul) Volcker
plan (for financial regulation): Real or rhetoric?
Double-dip recession: Valid or paranoia?
China
: Able to engineer a soft landing or not?"
And,
finally, the big one that has been making investors
especially uneasy: "Last week's market drop: Blip
or bear?"
Sam Stovall
, S&P's chief investment strategist, is among those
who believe that earnings during the last couple of
weeks present a positive tilt. But he said investors are
so nervous after going through the harrowing bear market
that their emotions could cause a 5 percent downturn
like last week's to spiral into a 10 to 20 percent
decline.
"Good
earnings aren't good enough," Cass said. "Even
the bulls agree that earnings need to be better than the
consensus. They can't be middling to take this market
higher."
Yet many
of the earnings reports are considered middling.
Starbucks
, for example, recently exceeded analysts' estimates.
But S&P restaurant analyst
Mark Basham
didn't see enough in the earnings detail to remove his
"sell" recommendation on the stock. He noted
Tuesday that although the company did show solid sales
during the holidays, some earnings growth came from
triggers such as foreign currency rather than the
lasting revenue improvements investors are waiting to
see.
"We
still think the market is pricing in stronger economic
recovery than S&P forecasts," he said.
Many
investors are looking at recent pullbacks in stocks and
wondering if global markets have more to come.
"The
recent 9 percent pullback in Latin American equity
markets, partly linked to moves to tighten liquidity in
China
, is a preview of what may happen later in 2010 when the
Fed prepares the ground for higher interest rates,"
said Citigroup Latin America strategist
Geoffrey Dennis
.
He thinks
the recent downturn in stocks worldwide is "not the
start of a major sell-off."
"
China
will not want to kill off the golden goose," he
said in a report to clients. "However, later in
2010, in the face of U.S. rate hikes" and
additional problems in
Greece
, which is facing debt issues, "investors may have
to turn more defensive."
Washington, D.C.
, money manager
Michael Farr
sees a reason to be defensive now. With potential major
changes in issues ranging from U.S. taxes to leadership
at the Federal Reserve, he said, it's difficult for
companies to plan and difficult for investment managers
to analyze profit potential.
Meanwhile,
despite trillions of dollars in government money flowing
into the economy, "We are not seeing a lot of
increase in demand from the consumers," Farr said.
And it's difficult to determine whether the economic
signs of strength are real or simply a result of
government money that eventually will stop flowing.
That's
not simply an area of confusion for investors.
Randall Kroszner
, a former Federal Reserve governor and economics
professor at the
University of Chicago Booth School of Business
, said trying to dissect real growth from
government-policy-induced growth will be difficult for
the Federal Reserve as it tries to pick the point at
which it can raise interest rates.
"We
do seem to have a recovery under way, but it must be
naturally generated," Kroszner said. "Given
the size of policy, it's more difficult to determine if
it's self-sustaining."
|
