The animals on Wall Street shuffle to a slow, indecisive beat
The full market menagerie is loose. The bears are out of hibernation. The bulls, well, they have perennial grazing rights. And nowadays there seem to be quite a few hybrid beasties mucking about Wall Street. A splendid sight if you're a zoo-goer. But this kind of variety makes for a trendless-to-dismal stock market. Witness the vacillating four-day pre-Easter week, when the Dow Jones industrial average muddled to 1,259.05, down 7.73 points in light trading.Skip to next paragraph
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A rough sketch of today's investor mix can be drawn from the sentiment gauge compiled by Investors Intelligence, a newsletter written from Larchmont, N.Y. The latest survey shows 50.5 percent of investment advisers are bulls (down from 64 percent in March), 22.5 percent are bears, and 27 percent fall into the hybrid group calling for a short-term correction.
Editor Michael Burke says his barometer (which is viewed by many market analysts as a reverse indicator) has been signaling a 100-point correction in the Dow. The Dow industrials have given up about 40 points since late February. Another 40- to 50-point drop could be in the offing, Mr. Burke says.
William J. Gillard would not be surprised. This director of investment policy says the folks at Kidder, Peabody & Co. didn't wake up with a growl just yesterday. ``We've been on the bear side for some months now.'' Lately, he has had more company as signs of economic problems become more apparent.
``A growing number of companies are disappointing investors [with weak earnings reports]. If enough individual companies disappoint, then those micro numbers become macro, and that has a negative effect on the market.''
The poor first-quarter earnings rolling out can have a dampening effect on investors' desire to buy stocks. Investors get concerned about what second- and third-quarter earnings will be like.
Meanwhile, interest rates have been winding slightly upward in the past two months, making fixed-income securities more appealing. And in March, fixed-rate mortgages edged up for the first time in eight months. If this trend continues, office and housing construction could slow. On the other hand, adjustable-rate mortgages declined a bit.
The mixture of reports makes for difficult analysis and guarded investing. Mr. Gillard describes the uncertainty of investors as very similar to that before President Reagan was reelected. The ebullience in January was ``misplaced.'' Contrary to expectations, quick action on the budget has not been forthcoming. ``Reality shows fiscal changes come slowly. We're back to a market environment where it is difficult to do well,'' he says.
His stock purchases consist of growth retailers, drug companies, and a couple of utilities. Attention is focused on defensive issues, ``the safer stuff.''
But even a self-avowed bear has a pair of horns in his top drawer -- just in case. ``You could always have a rally,'' Gillard says. ``If prices drop below 1,200, we could change our mind. And it's not inconceivable that we'll get some good news on fiscal policy.''