End Of The Rally?
The Daily Reckoning
May 26-27, 2001
Waterloo, New Hampshire
By Addison Wiggin
MARKET REVIEW: End Of The Rally?
Revised GDP numbers for the first quarter suggest the economy is not making a sexy “V” recovery, but more of a sagging U, without the upside…
On the news Friday, the Dow fell 117 – a weekly loss of 296. The Nasdaq shed 30 to close at 2251. The S&P 500 lost ground Friday – down 15 to 1277, ending the week down an equal amount.
ADD’L PRICES FOR THE WEEK: Gold Retrenches…commodities fall back
Crude Oil: $28.38
Natural Gas: $3.97
CRB Index: 212
Dollar Index: 118
The Sad, Sad Euro: $.85 – down 2 cents
British Pound: $1.42
Japanese Yen: $.83
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Evidence Of The Sucker’s Rally
What is seen: despite its 296-point loss for the week, the Dow has risen 17% from its March 12 low of 9389. The Nasdaq is up 37% from its 2001 low of 1638 set on April 4. The S&P 500, has added a healthy 15% since its April 4 low of 1103.
What is unseen: Corporate profits have dropped two quarters in a row. First-quarter 2001 after-tax profits fell over 3% in the first quarter. They fell 4.3% in the fourth quarter.
Even worse, business investment is falling too. Business investment fell 2.6% in the first quarter. It fell 3.3% annually in the fourth quarter. Those are the first back- to-back declines since, you guessed it, the recession 1990- 1991. Investment is what creates profits. And without new investment profits will continue to fall.
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