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MARKET > Commentary Tuesday, May 22, 2001
by: Bruce Feldman
Staff Analyst

Time Out

Firestone and Ford cut the knot after 95 years. The Turner - Fonda divorce was finalized. And the Dow and Nasdaq parted ways as well, although let's hope the latter isn't permanent. The word on the Street seemed to be that the markets are recovering a bit too far too fast. Could it be time for a pullback? That implies, of course, that investors are comfortable enough with a return to a long-term bullish trend to merely yawn this one off.

And it appears they were. As the Dow was hitting its lows today, buyers stepped in each time, including near the close. The Nasdaq also showed resilience in the face of the Dow weakness, as pockets of strength attracted buyers to keep the market afloat. This was despite rumblings by some hard-core bears in the past week that the V-shaped recovery could in fact turn into a W-shaped one. As the Dow snapped a four-session win streak, the Nasdaq (COMPX) finished up for the sixth straight day and managed to eke out a 8.26 point gain, 0.36 percent, to 2,313.85. The Dow (INDU) lost 80.68 points, or 0.71 percent, to 1,1257.24, however, no one was very upset about it. The sense is that the holiday weekend may already be kicking in. The S&P 500 (SPX.X) lost a mere 3.45 points, or 0.26 percent, to 1,1309.38. On the NYSE, decliners beat advancers 1612 to 1490, with 206 stocks unchanged. Over on the Nasdaq, advancers led 2163 to 1755, with 373 unchanged. Volume was heavy on the NYSE, with more than 1 billion shares traded, and at the Nasdaq, more than 2 billion shares traded hands.

Cisco (NASDAQ:CSCO +0.59) led the Nasdaq higher, up 2.58 percent to 23.46. Its archrival Juniper Networks (NASDAQ:JNPR +0.41) gained 0.73 percent, to 56.94. Other tech leaders included Microsoft (NASDAQ:MSFT +1.52), Ciena (NASDAQ:CIEN +3.51), and Worldcom (NASDAQ:WCOM +0.91),

Among the broader sectors, there was weakness in drug, gold, basic materials, consumer products, and oil drilling stocks. This contrasted with a strong financial sector that got its start yesterday. Strength was also seen within the tech sector. American Express (NYSE:AXP +1.06) was up 2.36 percent, Citigroup (NYSE:C +0.99) 1.92 percent, and J.P. Morgan (NYSE:JPM +0.59) gained 1.19 percent.

Of the Dow stocks, Merck (NYSE:MRK -2.30), United Technologies (NYSE:UTX -1.48), and General Electric (NYSE:GE -0.72) started the day weak and continued weak into the close. Also weak was Home Depot (NYSE:HD -0.39) after a Goldman Sachs downgrade of Lowe's (NYSE:LOW -1.50) based on valuation worries.

In general, there was a lack of broad-based buying today, but there were pockets of strength, especially among the small-caps. This group has been a source of confidence for the broader market. To wit, the Russell 2000 (RUT.X) has gained 0.5 percent, while the S&P Smallcap index (SML.X) rose 0.9 percent.

"You've Got A Bill!" - AOL Time Warner (NYSE:AOL -0.45) announced that it would be raising its monthly "unlimited use" rate for the first time in three years. The stock has been up about 65 percent from its recent lows, as investors expect an improvement in revenues. AOL lost 0.80 percent, to 56.15.

On the economic front, Philadelphia Fed President Anthony Santomero said this morning that he doesn't expect the recent downturn to affect the long-term expansion of the economy. He also said that the phenomenon of long-term Treasury yields rising in an environment of Fed cuts meant the market was pricing in an economic recovery. He also said that the strong dollar seemed to be reflecting a similar message.

Fed Bank of New York President William McDonough also chimed in today by saying that the rapidly moving financial markets will ensure that the recent Fed rate cuts will begin to take effect sooner than they used to. And this jives with statements over the weekend from Treasury Secretary Paul O'Neil - recently called the Bush administration's "weakest link" by one columnist - that we have in fact dodged a recession.

Such expressed sentiments seemed to have stimulated at least the financial sector today, which bet that lowered borrowing costs just might stimulate consumer spending. At any rate, the sector didn't catch cold from the weak Dow. Nor did the Nasdaq. Could this mean that the current overall rally has some staying power, even into the Memorial Day weekend? Could Firestone get back together with Ford? Could Jane reconcile with Ted?

For Tomorrow:

Some earnings reports after hours today may effect the markets on Wednesday: Cabletron Systems (NYSE:CS +1.14), Intuit (NASDAQ:INTU -0.47), Kohls (NYSE:KSS +0.17), Medtronic (NYSE:MDT +0.63), Nvidia (NASDAQ:NVDA +2.70), Novell (NASDAQ: +0.10), Saks (NYSE:SKS -0.57), and VA Linux Systems (NASDAQ:LNUX +0.34).

Bruce Feldman
Staff Analyst


Copyright 2001

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