Closing Market Report

Star-Bulletin news services

Saturday, July 19, 2003

Bull market
sector leader has
yet to come forward

NEW YORK >> Investors betting on the tech sector to lead a new bull market as it did in the late 1990s were likely disappointed this past week when the Nasdaq composite tumbled on tepid outlooks from Nokia and IBM.

Analysts say the setback isn't necessarily surprising, noting that a fresh bull run is rarely led by a previous driver. Indeed, they believe a clear leader might not emerge for some time, although financial services and cross-industry categories such as dividend-paying stocks show promise.

"The 'leadership factor' is frequently associated with major bull markets," Mark Fulton, deputy director of U.S. equity research for Smith Barney, said in a report Thursday. "The renewed equity rally to date has included a substantial technology recovery, but this is more in line with a (short-term) cyclical recovery than structural leadership."

Fulton and equity strategist Tobias Levkovich explained that while some segments of the tech sector have performed strongly, it is unclear whether the gains are sustainable or that Wall Street's advance overall can continue long-term.

"There has been fairly constant sector rotation in the equity market, with no clear leadership over the past three years," Levkovich stated. "In a cyclical recovery, certain industries will do better than others ... while a softening economy may demand that investors seek out more-defensive stocks."

There was evidence of a leadership void this past week.

After far outpacing the other major indexes this year, the Nasdaq suffered its largest point-drop in four months Thursday on weak forecasts from Nokia and IBM. Analysts said investors were disappointed after having high expectations for a second-half economic recovery, particularly in the tech sector, although Microsoft helped alleviate some of those concerns with an upbeat outlook late Thursday.

The financial services sector, meanwhile, showed surprising strength after Citigroup, Bank of America and Merrill Lynch reported quarterly earnings that handily beat analysts' estimates. The results helped minimize losses in the Dow Jones industrial average this past week.

For the week, the Dow Jones industrials rose 68.56, or 0.8 percent. They closed yesterday at 9,188.15.

The Nasdaq composite index had a weekly decline of 25.42, or 1.5 percent, closing at 1,708.50 yesterday. The Standard & Poor's 500 index had a weekly loss of 4.82, or 0.5 percent, finishing at 993.32.

For the week, the Russell 2000 index fell 9.01, or 1.9 percent, closing at 464.76.

The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 9,546.66, down 64.27 from the previous week. A year ago, the index was at 8,082.99.

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