End Of The Rally?

The Daily Reckoning

Weekend Edition

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

Gold: $278

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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