Mysterious market

Wall Street has few clues
on the stock sector's next leader

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By Amy Baldwin
Associated Press

NEW YORK >> One great mystery on Wall Street has been which stock sector is going to lead the rest of the market into recovery. It's not about to be solved anytime soon.

Investors, having gotten past the Sept. 11 anniversary of the terror attacks, must now factor the possibility of war with Iraq into their search for leadership. And a wide range of companies -- this past week, chip maker Philips Electronics and manufacturer Honeywell International -- are warning that business remains depressed.

"We are just mired in a situation where the economy is not giving you the high sign. We are post-Sept. 11, but staring possible war in the Middle East in the face," said Brian Bush, director of equity research for Stephens Inc. "That is a difficult environment for the market to go forward in."

There may not be any clear-cut leaders on Wall Street for a while.

"In terms of market leadership, I don't think we are going to have any. It is going to be very fragmented," said Scott Bleier, president of Hybridinvestors.com.

Of the 10 sectors tracked by Standard & Poor's, consumer staple issues -- quite defensive given that they are makers of such banal necessities as toothpaste and deodorant -- are the lone leaders, up 1 percent so far this year.

No surprise who the biggest losers are -- telecommunications, down 45.2 percent as companies continue to suffer the glut of the late '90s, and information technology, down 37.6 percent, once loved but no longer providing hope that it will be the market's savior.

"We are getting increasing signals from the technology sector that (the rebound) is not going to be in the second half of '02 or early '03," Bush said. "I don't think technology is going to provide the leadership."

Given the political and economic certainty, analysts say the best strategy for investors is a defensive one. And, that means choosing stocks that pay high dividends or those will fare best if the United States goes to war.

Tracy Herrick, chief market strategist at Jefferies & Co., recommends oil and defense stocks, saying they will benefit the most if there is a war with Iraq, and high-dividend-paying blue chips, which at least give investors some cash return.

"That is the most defensive situation," Herrick said.

Bush recommends drug stocks, which were a winner last year but have fared less well this year.

He also favors "early cyclicals" such as trucking firms and those that produce basic materials. "If you see any signs that (other) companies are on a capital spending spree again, those are the first companies that are going to feel it," he said.

The market's major indexes recorded their third straight weekly declines.

For the week, the Dow lost 114.51, or 1.4 percent, after falling 66.72 yesterday. The Dow closed the week at 8,312.69.

The Nasdaq composite index had a weekly decline of 3.90, or 0.3 percent. Yesterday, the Nasdaq rose 11.72 to 1,291.40.

For the week, the Standard & Poor's 500 index slipped 4.11, or 0.5 percent. Yesterday, the S&P advanced 2.90 to 889.81.

The Russell 2000 index had a weekly loss of 1.58, or 0.4 percent, after eking out a small gain the previous week. Yesterday, the Russell, which tracks smaller company stocks, rose 3.72 to 389.99.

The Wilshire Associates Equity Index, which represents the combined market value of all New York Stock Exchange, American Stock Exchange and Nasdaq issues, ended the week at $8.440 trillion, down $40.27 billion from the previous week. A year ago, the index was $10.104 trillion.