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Winners hard to spot
in choppy market
NEW YORK >> Wall Street staggered through the month of February, unable to latch on to a direction amid a dearth of useful economic information. When the market is in the doldrums like this, expert investors try to find stocks and sectors with a likely upside -- but the month's performance shows that can be a daunting task.
The Nasdaq composite index finished its sixth down week in a row yesterday, and continual selling pressure held the Dow Jones industrial average and Standard & Poor's 500 to minimal gains for the month.
In such uncertain times, the relative stability of large-cap value stocks becomes more appealing, said Tim Hayes, global stock strategist at Ned Davis Research in Venice, Fla. In the sideways trading of recent weeks, the technology-dominated Nasdaq has proved more volatile than the other major indexes.
"It could be a little bit trickier in the next few months," Hayes said. "Right now, our work shows things are holding up really well, but we have seen some divergence appearing that shows tech underperforming. ... It's probably going to be choppy for a while."
It's not unusual for the market to pause in February, on the heels of the strong upward momentum typical of December and January. But now it's not clear whether the rally will continue or if stocks will shift lower.
Hayes and other analysts are closely watching the financial sector, which is poised to do well as long as interest rates remain low, and more defensive areas such as utilities and consumer staples. Health care, traditionally more of a growth sector, may also hold opportunities in a down market.
Technical analyst John Roque, senior vice president at investment brokerage Natexis Bleichroeder, said financials are "absolutely the most important market sector." With merger and acquisition activity rising, they're in a particularly good position.
"While financials seem stretched on the upside, there is no weakness yet that would suggest their trend is prepared to change," Roque said. "I also pay attention very closely to the performance of semiconductor stocks, because if they weaken, all of tech tends to follow. And they've not been good performers of late."
Although a shift away from techs and small-caps is likely, the longer-term outlook may not be so bad. A near-term correction "would leave the market in a healthier situation for a rally in the second half of the year," Hayes said. "Then we'd be watching for some of the previous leaders to reassert themselves, like tech and cyclicals, and even small-cap stocks."
The equity outlook for the year remains upbeat overall. Inflation is in check, interest rates remain at 45-year lows, bond yields are in a reasonable trading range and earnings growth and economic data have been largely favorable. A weak job market and rising debt levels are the most worrisome aspects.
Mutual fund flows are also up, indicating more people are raising their stakes in the market. Stocks are still a good investment, but analysts warn that few bargains remain.
"What you're seeing right now is the public starting to express its belief in the market again, and my comment is, where the heck were they 15 months ago?" said Bernie Schaeffer, chairman of Schaeffer's Investment Research. "If we put a top in the first half or first quarter of this year, it's going to catch a lot of people coming in right at the peak."
The Dow Jones industrials ended the week down 35.11, or 0.3 percent, finishing at 10,583.92, but was up 0.9 percent for the month. The Standard & Poor's 500 index gained 0.83, or 0.1 percent, to 1,144.94 for the week, and was up 1.2 percent for the month. The Nasdaq dropped 8.11, or 0.4 percent, during the week, closing yesterday at 2,029.82, and ending the month down 1.8 percent.
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