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Rally Will Fall Flat
-- October 11, 2002
The Dow's recent rally is a house of cards -- and it's already starting to wobble. There's simply no foundation.
Just take a look at the so-called "catalyst" behind the rally. GE met its earnings projections. But GE's earnings were helped by a one-time credit for the sale of a division and the fact that earnings from a year ago were depressed because of costs related to the 9/11 terrorist attacks.
Investors should take a cue from GE insiders, who aren't exactly scrambling to buy the stock, even at its current "fire sale" price. In the past year, GE insiders bought $372,543 worth of stock in the company. At the same time, their colleagues sold over $5 million worth of stock. GE's stock has dropped 42% in the past year. But GE insiders clearly don't think it's a bargain, and it appears that many think it has further to fall.
Plus, new signs of a consumer spending meltdown are sure to add to investor wariness about earnings for retailers, restaurants, car manufacturers, airlines, hotels, and any other place where consumers spend money. With consumers accounting for two-thirds of economic activity, investors won't be able to ignore plunging retail sales and damaged consumer confidence.
If investors take the weekend to mull over today's consumer spending data, we expect them to take advantage of the temporary rally to sell their stocks.
Consumers Pause in Sept; Worry in October