Posted on: Monday, May 26, 2003
Headlines may drive markets in summer
By Hope Yen
Associated Press
NEW YORK — Wall Street investors who rely on earnings and economic fundamentals to guide them were frustrated last week: Stocks snapped their five-week rally, falling largely on speculation about the Bush administration's dollar policy and fears about mad cow disease.
The emphasis away from corporate profits may seem surprising. But analysts say headlines from beyond the economic mainstream might be the major catalysts that drive trading during the usually quiet summer months.
Analysts believe the kind of skittishness seen last week is a remnant of the bear market.
"We've seen this happen where we've had nice rallies on three to four occasions in the past three years," said John B. Leo, director of growth funds for Northern Trust. "There's concern the rally will run out of steam and could be another head fake within a continuing bear market."
The Standard & Poor's 500 and Nasdaq composite indexes broke a five-week winning streak, while the Dow Jones industrials ended three weeks of gains despite upbeat earnings from component Home Depot.
Analysts said investors were reacting to ambiguous remarks from Treasury Secretary John Snow that suggested the United States was backing away from a strong dollar policy, even though the government later said it supported a strong dollar.
On Tuesday, the market was also jolted by a case of mad cow disease in Canada, as well as renewed terrorism fears after the U.S. government raised the national alert level, saying there was a risk of attacks. Stocks partly recovered later in the week on news that Congress passed a slimmed-down version of President Bush's proposed tax cut.
"What markets don't like is uncertainty," said Brian Pears, head equity trader at Victory Capital Management in Cleveland. "A weak dollar is not necessarily a weak thing for the market ... but when doubts creep in ... you see a dramatic reaction."
Indeed, some analysts believe last week's trading on moderate volume and speculation might be a sign of things to come in the next weeks. They note that after several weeks of rallies on upbeat earnings, investors are looking for stronger evidence of a recovery before sending stocks higher.
And that might not be immediately forthcoming during the summer months, when economic news tends to be light and many investors are away on vacation. Indeed, the period spanning May through October is known as the worst six months of the year because of its lagging performance since 1950, according to the Stock Trader's Almanac.
In 2002, for example, the Dow dropped more than 1,500 points, or 15.6 percent, from May to October, largely because of terrorism fears driven by the latest headlines. The slide pushed the three main gauges to five- and six-year lows on Oct. 9.
"The big question you have to ask is what is the catalyst," said Russ Koesterich, U.S. equity strategist at State Street Corp. in Boston. "We're entering the weak part of the year seasonally. ... The saying, 'Sell in May and go away,' may prove to be effective."
For the week, the Dow fell 77.59, or 0.9 percent. It closed Friday at 8,601.38.
The Nasdaq had a weekly loss of 28.44, or 1.9 percent, closing at 1,510.09 on Friday.
For the week, the Standard & Poor's 500 index dropped 11.08, or 1.2 percent, to finish at 933.22.
But the Russell 2000 index, the barometer of smaller company stocks, had a weekly gain of 3.71, or 0.9 percent, closing at 418.40.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 8,916.23, down 73.64 from the previous week. A year ago, the index was at 10,250.64.
