Market Danger Ahead Monday, March 12, 2001 By John Crudele It's fear and trepidation time - again. Traders got the opportunity to make a few bucks early last week. The stock market rallied during a particularly benign period for economic reports and ahead of the usually benevolent triple-witching expiration.
But the safe period was short and "investors" - whom I define as anyone who also must work for a living - got rocked again. The assault began anew late last week.
The Dow Jones industrial average collapsed 213 points on Friday, a drop of nearly 2 percent. The Nasdaq index lost another 115 points, or 5.35 percent. That brings over-the-counter stocks down nearly 17 percent this year alone.
The OTC stocks are down more than 60 percent from their historic high one year ago this week.
So what does the future hold? More trouble, but maybe not immediately.
When the Fed meets next week Alan Greenspan will cut interest rates again. He's basing his decisions on private economic stats, and one he uses to monitor inflation is dropping fast enough for another cut.
Does that mean the stock market will soon be soaring?
Nope. The government will report inflation figures this week, and it's anyone's guess what they'll be.
But expectations on Wall Street are for a very small jump in producer and consumer prices. So the chances are greater that they will be shockingly higher, rather than pleasantly low.
The government's inflation figures are as worthless as its job figures. But Wall Street does pay attention to them. A higher-than-expected inflation report could be a knockout punch for an already groggy equities market.
But the stocks being punished could change.
The Nasdaq is fast approaching the 2,000 level - which should act as a barrier to its fall for now.
Blue chip stocks represented in the Dow and the Standard & Poor's indices aren't down nearly as much in the last year, and they're still very overpriced. With first-quarter profits due in just a few weeks, a betting man would give odds that these will be the next torture victims.
You have to understand what caused Friday's panic to appreciate where future problems may surface.
First, Wall Street was spooked when Intel lowered its sales forecast and said demand for personal computers is slowing.
But as I said last week, the big worry should be over IBM. The computer giant has not issued any cautionary notes to Wall Street.
IBM's stock was clipped for 7.18 points on Friday, closing at $99.29. And IBM is now 6 percent below where the stock rallied in the middle of last week.
Any bad news from IBM will be devastating for the market, especially because the company hasn't seen fit to prepare the markets for any surprises.
The market was also knocked lower on Friday because the government's report on job growth in February was stronger than the Wall Street experts had been expecting. Investors wanted these numbers to show a level of weakness that would force Greenspan to cut interest rates.
But Wall Street should clue into this: Whether they are showing strength or weakness, the government's labor numbers are no good.
On Friday, for instance, the Labor Dept. reported that 135,000 new jobs were created last month. And hourly wages rose 0.5 percent, nearly twice as fast as had been expected.
Plus, despite all the corporate layoffs that have been announced, the unemployment rate unexplicably held at just 4.2 percent.
The numbers don't pass the smell test. They don't even jibe with other statistics by Washington, namely a survey of households that shows the loss of 184,000 jobs in February.
That number, which is used in calculating the unemployment rate, does pass the smell test.
How'd the unemployment rate stay so low?
Even though households reported that 184,000 jobs disappeared, the government also lopped some 200,000 people out of the work force. Statistics-wise, this was a wash. So the unemployment rate is still down at near-historic levels.