A Year to Forget

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05.03.01 11:51

20520 Postings, 7444 Tage Stox DudeA Year to Forget

BLACKOUTS IN CALIFORNIA, an earthquake in Microsoft's back yard, a cave-in on Wall Street. Is there a disaster out there that hasn't yet humbled the New Economy, which only a year ago was loudly proclaiming its immunity from laws of nature and financial analysis alike?

As it happens there is: a washout. That's what Bill Meehan, chief market analyst at Cantor Fitzgerald, believes will happen before tech stocks reverse their slide. "They are still expensive for companies that, as people are coming to learn the hard way, are cyclical," Meehan warns.

A washout is a lot like capitulation, if you're into the Street's technical jargon. In case you're not familiar with the term, it's what happens when you decide you can no longer wait for, say, Priceline (PCLN), now trading at $2.56, to reclaim its onetime high of $162.38, and decide to sell for whatever you can get. In the sort of washout Meehan has in mind, everyone then proceeds to do the same with the rest of their depreciated tech stocks.

By the time mutual-fund managers complete this exercise, the Nasdaq will be sitting at around 1500, he figures. "There is not a buyer of any significant size able to absorb the amount of equities that will come onto the market if most mutual funds decide to give tech market-weighting, never mind underweighting it," Meehan says.

That's the pessimistic view. A sunnier scenario has the Federal Reserve cutting interest rates soon (if not soon enough for the reputation of one former Fed governor). This would then juice the stock market in the manner of Fed easing campaigns of yesteryear, with cheaper money doing the trick for shares even before it works its magic on the national economy.

Those who subscribe to this view may want to take the coming week off, if only because the key event happens next Saturday, when tech investors will burn Etoys (ETYS) share certificates to mark the one-year anniversary of Nasdaq's all-time high.

Neither this site nor any other financial news outlet will let this watershed pass unnoticed. So as the talk turns to buying opportunities, keep this in mind: If this bear market ends on Monday and shares rediscover their historical returns of about 12% a year, the Nasdaq will be shooting for a new record sometime around New Year's ? in 2009.

In the meantime, the earnings slump isn't over just yet. To repeat last week's theme, there's another avalanche of bad earnings news heading this way. By the time it gets here, Oracle's pre-announcement will in no way stand out. All the individual confessions are adding up to one grim macro picture, as First Call Research Director Chuck Hill noted yesterday in his weekly earnings update:

"It is next to impossible to predict where the bottom in earnings will be when company guidance and analyst estimates are falling at such a rapid pace. All one can do as the downturn unfolds is check off quarters that will not be the bottom. Recent thinking is that the bottom would be 2Q01, but we now believe it will be 3Q01 at the earliest."  

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