Sun, Jul 11, 2004 - Page 10 News List

Wall Street still worried over growth

SUMMERTIME BLUES Investors and analysts in New York are bothered by the slow pace of economic growth in the US, as terror fears add to their troubles


Wall Street has a case of the summertime blues as investors grapple with fresh doubts about the pace of US economic growth and profits along with ongoing global security issues.

In the holiday-shortened week following the US Independence Day observance, the Dow Jones Industrial Average fell 0.67 percent to 10,213.22 while the broad-market Standard & Poor's 500 dropped 1.11 percent to 1,112.81.

The NASDAQ composite tumbled 3 percent over the four sessions to end Friday at 1,946.33.

A jump in oil prices back to US$40 a barrel in New York over the past week -- reflecting concerns about security -- sparked jitters on Wall Street as earnings season kicked off with results from Alcoa and Yahoo that disappointed most investors.

"Yahoo gave a non-convincing [profit] guidance outlook; that, and a combination of oil prices going over US$40 again, and the fact that the White House is once again warning about terrorist attacks, obviously put pressure on the market," said market strategist Peter Cardillo at SW Bach.

The market regained some lost ground Friday after an upbeat earnings report and outlook from conglomerate General Electric, but not nearly enough to make up for earlier losses.

The market has failed to deliver the summer rally some had anticipated after the Iraq handover and the Federal Reserve's first move boosting interest rates -- along with a pledge to remain "measured" in any future rate moves.

After these events, said Alfred Goldman at AG Edwards, "investors had good reason to get more bullish, but they did not. We were disappointed and surprised by this reaction."

Goldman said he still predicts the S&P 500 will hit 1,200 by the end of the year but is now concerned about investor sentiment.

"A couple of down days does not change a bull to a bear, but they did get our attention, and future market action will be watched very closely," he said.

"Investors are again in a `glass is half full or half empty' dilemma," he said, adding that while economic data have been mixed, "with a `glass is half empty' attitude, investors decided to worry that too slow of a growth rate would put a big brake on earnings expansion."

Other analysts see the market churning in its narrow range as it has over the past six months until a clear catalyst develops.

"We expect the grind of this year's first half to continue over the next six months," said Joseph Quinlan, chief market strategist at Bank of America, citing the "headwinds" of cooling US economic growth, flagging retail sales and other factors.

The market has been fretting since last month's payroll report showed only tepid job growth and other data have been softer than expected, Quinlan said, "leaving many investors to worry that the economy could be losing its momentum."

Quinlan said the presidential election this year is also contributing to market hesitation.

"With no clear front-runner in November's presidential election, investors are likely to face four months of uncertainty regarding the political climate," he said.

"A tight presidential race could prompt many institutional managers to head for the sidelines, contributing to a lackluster market performance over the near term."

Jay Suskind, director of trading at Ryan Beck, said investors are taking a wait-and-see approach as they sift through the earnings reports of the second quarter.

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