As Wall Street spins wheels, special situations take on interest
The shifting of gears going on in the financial markets hasn't been butter smooth lately. Through most of the last six months, until May, bonds have led stocks on a high-speed, highly profitable chase. Then bonds skidded into the pits and now stocks are left careening on an uncertain track.Skip to next paragraph
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This past week, the Dow Jones industrial average posted an 11.71-point loss, closing at 1,874.19. In a buying surge on Friday, investors in the blue-chip issues overcame qualms, and the Dow regained most of the record 45.75 points lost on Monday.
Buyers of over-the-counter stocks took a less volatile course, pushing prices steadily higher. In fact, so far this year the NASDAQ composite index is up 22 percent, outpacing the Dow's 19 percent run-up.
Among the big movers last week: Financial News Network, Horn & Hardart, and a stock called C.O.M.B. FNN's price doubled on reports it is considering going into the cable-TV telemarketing business.
The excitement stems from the meteoric debut of Home Shopping Network, a lucrative telemarketer. It went public at $18 a share last month and now trades at about $75.
But such euphoria passed by the more economically sensitive Dow stocks. At the heart of last week's concerns: refinancing Mexico's heavy debt and getting a reading on a United States economy that's offering no outright assurances that it might be upshifting or downshifting.
That has kept investors wondering: Is the equity market going to be driven by falling interest rates or by an upturn in corporate earnings?
Last week's unexpectedly weak retail sales figures for May bolstered the lower-interest-rate theory. Market strategist John D. Connolly of Dean Witter Reynolds expects events outside the US to provide the leeway for lower rates here.
The none-too-robust economies of Europe and Japan, coupled with pending elections in both Germany and Japan, could provide the political incentive for central banks to drop interest rates to spur business activity.
Morgan Stanley & Co.'s Byron R. Wien, who has just returned from London, Vienna, and Florence, says European investment bankers have similar expectations for lower rates.
But until such things begin to quietly mesh, several financial forecasters are taking refuge in cash.
For the first time in six months, E. F. Hutton & Co. recently went from zero to 10 percent cash in its model portfolio (60 percent equities, 30 percent bonds). Hutton is recommending lightening up on interest-rate-sensitive stocks.
Another member of the yellow-flag club, newsletter maven Howard Ruff, states in a recent issue that ``this bull market has one more leg up, but after a massive, overdue correction.''
Using his charts of moving averages, Ruff figures a 200- to 300-point drop in the Dow ought to be adequate.
Ricky Harrington finds that a bit overdone for his technical tastes. ``My worst case is a fall to 1,750 to 1,800,'' says Mr. Harrington, director of analysis at Interstate Securities in Charlotte, N.C. ``We'll resume the upswing later this summer, perhaps as soon as later this month. I think we're likely to do 2,200 to 2,300 in the next six months.''
Brave words in the face of negative technical signs. Last week, bears let out an approving growl when new lows on the NYSE exceeded the number of new highs for the first time this year.