As of Wednesday Feb. 1 we are only 22 trading days into the year, but the action has been wild and woolly.
The DJIA closed 1999 at 11,497, but on Wednesday, Jan. 5, a mere three trading days later, intra-day, it touched 10,939 or a loss of 558 points. From the low point, the market came roaring back and by the close of the first week of the year, was back on the plus side.
The strength continued through the next week and on Friday, Jan. 14, the DJIA closed at a record high of 11,723.
The third week saw the market reverse direction again as it fell 471 points. Although the market has been on a pogo stick, as we closed out the first month of the year, I notice that the net change has been quite small.
While the DJIA has been on a pogo tick, the Nasdaq Composite has been on a rocket ride. The Nasdaq Composite slumped briefly early in the year but measuring from its recent intra-day low of 3,711 on Jan. 7 through its close on Tuesday Jan. 25 at 4,167.30, the Index has gained approximately 12 percent in less than 12 trading days.
This recent spurt is even more incredible when viewed in light of the fact that it comes on top of the 85.6 percent gain the Nasdaq Composite posted last year.
Saving the best for last, at the end of 1997, the Nasdaq Composite stood at 1,570.35. Over the past 25 months (Dec. 31, 1997, to Jan. 25, 2000), the Nasdaq Composite has risen an incredible 165 percent. If the DJIA had matched that performance, it would be trading today at a mind-boggling 20,957.
The market has been quite volatile and extremely frustrating. New economy stocks (Internet and technology) are chased to valuation levels that only seem normal to Internet and technology buffs and the people I meet at fund raisers and Rotary parties.
Old economy stocks (anything nuts and bolts, or engaged in manufacturing) trade up a bit, then down a bit until it misses a quarterly earnings number and then it gets crushed.
So what am I missing? Is my age showing? As Dick Hoey at Dreyfus once quipped, "Our biggest deficit is that we have a memory." We do know that when there is doubt, as is the case relative to recent market digressions, perhaps a fully invested portfolio manager raises cash and is wrong for two days, he risks losing the account. Interesting times? You bet.
I want you to be cognizant of the old Wall Street adage, "It isn't a stock market but a market of stocks." Loosely translated, it means it doesn't really matter to investors what the stock market does, what matters is how the individual stocks in their own portfolios perform.
Now, having said that, I still believe the year 2000 will wind up in the record books as a modest up year. The No. 1 reason for my optimism has been and remains: earnings.
On Jan. 18, the research department at Salomon Smith Barney raised its earnings estimates on the S&P 500. We are forecasting that fourth quarter 1999 will show a 19.4 percent gain over fourth quarter 1998. We also raised estimates for calendar years 1999, 2000 and 2001.
The bad news: earnings growth is slowing. The good news, at 10.2 percent this year and 8.0 percent next year, they still should be high enough to afford the stock market modest gains. Try to ignore the volatility. Focus on a 12- to 18-month time horizon. Forget about continued 25 percent year-after-year gains for the stock market. High single digit, very low double-digit rates of return is what I'm expecting.
Oh, and one last confounding market state: On Tuesday, Jan. 25, 2000, the DJIA closed at 11,030, up 18.3 percent for the prior 12 months. At the same time, the DJ Transportation Index closed at a new 52-week low, down 15.4 percent for the past year.
William Creekbaum, MBA, CFP, a Carson City resident, is vice president-investments of Salomon Smith Barney, a financial services firm serving Northern Nevada.
