Market Needs New Catalyst
Feb. 12 -- The market wants a new drug. Special G — a healthy dose of Alan Greenspan — just doesn't seem to be working anymore. Now that investors have gotten used to the idea that the Federal Reserve is back on the market's side again, traders are looking for another reason to push stocks higher.
In the last week and a half, they haven't found one. With earnings season about done and investors worried about some of the most prominent companies yet to report (like Dell and Hewlett-Packard later this week), market participants have taken to using the term "dead money" to describe growth stocks.
The January rally was founded on the belief that the Fed's aggressive rate cuts would cause a pronounced improvement in economic activity somewhere around six to nine months down the road. These days, they're realizing six to nine months is a long time to wait for growth stocks to grow.
"It's going to be some hard pulling for a while," said Doug Myers, vice president in trading at IJL Wachovia. "There's nothing out there to jump-start it, no pending event."
A combination of rotation and hesitation is facing the market for the next several weeks, without a significant catalyst to cause a rebound in the growth sectors.
Technology stocks, with the exception of a few sectors, have gotten slammed in recent weeks based on the growing realization that software, networking and fiber-optic names are dealing with a slowing in capital spending and a draw down in inventories.
When capital spending rebounds is unclear — but it doesn't appear to be on the horizon yet. The tech-led rally of January was a reaction to the Fed, rather than a reflection of improvements in company fundamentals. For a while, the market got some mileage from reports that financial activity, such as bank loans, debt offerings and mortgage activity, was showing improvement. While that could help the market's tone in coming months, it's a pretty esoteric factor to hang one's rally hat on.
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