OT
Wall St’s poor start could bode ill for year
By Stephen Schurr in New York
Published: January 17 2005 19:17 / Last updated: January 17 2005 19:17
The new year is off to a lousy start. The S&P 500 is off 2.3 per cent, the Nasdaq Composite is down 4 per cent and the Dow Jones Industrial Average has shed 2.1 per cent.
There are two more telling gauges of how much of a turnround 2005 has been from 2004. First, the bottom 50 performers on the S&P 500 so far this year have shed 11.4 per cent since January 1. Last quarter, the 50 stocks returned 24.4 per cent, leading the robust year-end rally that put the benchmark index up 9 per cent for 2004.
This stark change suggests support for the leaders of the post-election rally - a tech-heavy list that included stocks such as Advanced Micro Devices, Sun Microsystems and Delta Air Lines - has run out of steam. Second, in the first eight days of trading in 2005, less than $2bn has flowed into equity funds, according to forecasts by TrimTabs.
During the entire month of January last year, fund flows into equity funds reached an all-time high $44bn.
The poor performance - and absence of cash flows - has caught many off guard and raises the ominous question: is this the prologue to a bad year?
"This is a big surprise - you almost always get a rally at the beginning of the year as money comes in," said Fred Hickey, who writes the Hi-Tech Strategist newsletter, which holds a bearish view of the market. "It's following a pattern that we saw in Japan in 1990."
In 1990, the Nikkei stumbled out of the gate and ended up tumbling 39 per cent in the first year of a brutally long downturn.
The US market has stumbled out of the gate in the past and gone on to notch strong returns. In 1991, the S&P skidded 4.6 per cent in the first five trading sessions, and ended the year up 26.3 per cent.
In fact, some market watchers blame the rush by investors, especially hedge funds, to ride the rally that ended the year.
Charles Biderman of TrimTabs said: "Flows are historically strongest in January, so the market usually goes up, so the thousand hedge funds out there ended the year long. When everybody is long and fully invested, who's the next investor?"
The hope for bulls is that the weakness can be notched up to rapid-fire hedge funds acting like lemmings, setting up the overheated market for a short-term correction.
While the US markets were closed yesterday for the Martin Luther King holiday, this week should provide ample opportunity for stocks to recover, since earnings reports come from the likes of Yahoo, 3M, General Motors and Citigroup.
However, this reasonmeets difficulty when one considers that two early earnings reports from Intel and Apple delivered everything Wall Street could have hoped for - and the markets failed to notch rallies on either.
News 
Market Data 
Discover 
AI
