Sun, Jul 25, 2004 - Page 10 News List

Greenspan-inspired rally peters out


The grim mood on Wall Street became even darker during the past week as the market erased gains for the year, amid investor jitters over security, the economy and the presidential election.

Over the past week, the blue-chip Dow Jones Industrial Average slid 2.72 percent to end at 9,962.22, closing on Friday below the psychological barrier of 10,000 for the first time since May 24. The broad-market Standard and Poor's 500 retreated 1.38 percent to 1,086.20.

The tech-heavy NASDAQ composite meanwhile tumbled 1.8 percent over the week to 1,849.09, hitting its lowest point since Oct. 2.

"Investors are almost paralyzed. They're stopped by concerns over earnings growth, over terrorism, the elections, the Fed strategy [and] over oil prices," said Hugh Johnson, investment strategist at First Albany.

"I've never seen all these concerns at once," he said.

"Wall Street closed out a dispirited week, searching for that spark that does not seem to exist," added Larry Wachtel at Wachovia Securities.

The past week was marked by a series of high-profile earnings reports that ended up as a disappointment, mainly because of the weak forward-looking guidance. But some firms like Microsoft and even failed to meet the targets for the second quarter set by Wall Street analysts.

"The biggest concern going into earnings season was what the guidance was going to be like," said Art Hogan at Jefferies and Co.

"Even though they've been great reports, I can give you no good example of good guidance," he said.

Another key event was Federal Reserve Chairman Alan Green-span's appearance in Congress, where he offered an upbeat outlook about the US economy, suggesting the current "soft patch" was temporary.

While Greenspan sparked a modest rally at midweek, that quickly faded as the market failed to sustain its momentum and some began to doubt the rosy picture painted by the central bank chief.

Some said Greenspan's "Goldilocks" scenario -- an economy that is neither too hot nor too cold -- was not convincing.

For his congressional appearance, "Greenspan donned his Goldilocks outfit, arguing for robust growth, low inflation and a measured Fed. We think he is being a bit overly optimistic," said Lehman Brothers chief US economist Ethan Harris.

"The risks all seem pointed to the downside," added Merrill Lynch chief North American economist David Rosenberg.

"Now we would be the first to acknowledge that forecasting is a mug's game at the best of times, but the historical record shows the Fed to be wide off the mark in its GDP growth projections with near consistency," Rosenberg said.

All this talk has had Wall Street heading for cover. But some say that it is often darkest just before the dawn, and that the current grim mood on Wall Street may be a sign of brighter times soon.

Bob Dickey at RBC Dain Rau-scher said he sees a "bottom-ing" process in the market that he believes is nearly over. His forecast "projects a target of around 9,600 on the Dow, and near 1,700 for the NASDAQ, before we believe the markets bottom ... and start some improving trends."

"We believe that all this nasty market action will lead us to a very good general buy point, but by then, the sentiment will likely make it much more difficult for many investors to act, as is often the case," he said.

Bonds fell despite the cautious mood as the Greenspan remarks appeared to prepare the market for steady rate hikes. The yield on the 10-year US Treasury bond rose to 4.432 percent from 4.361 percent a week earlier and that on the 30-year bond to 5.171 percent from 5.123 percent.

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