Newspaper article St Louis Post-Dispatch (MO)

One Sure Thing about the Market: Nobody Really Knows What's Next

Newspaper article St Louis Post-Dispatch (MO)

One Sure Thing about the Market: Nobody Really Knows What's Next

Article excerpt

Summertime, and the livin' is queasy.

The first half of this year began powerfully and ended with a bad case of jitters. It provided a 10.5 percent gain on the Dow Jones industrial average and 8.88 percent rise in the Standard & Poor's 500. Footwear and oil drillers became stars, while precious metals fell.

The second half is far from a sure thing, despite a 75-point gain on its initial day of trading. The market dropped 83 points Thursday on a sell-off in tech stocks, and nagging doubts remain about corporate earnings and mixed economic signals. Yet some pundits are optimistic.

An upbeat Greg Smith, chief portfolio strategist for Prudential Securities, recently reduced cash in his aggressive growth portfolio and boosted stocks to 70 percent. He doubled bond holdings to 20 percent, based on a belief inflation fears are unfounded and interest rates won't move. He left just 10 percent in cash.

"Negative earnings pre-announcements by companies put people in a panic, taking down not only those stocks but others with them," observed Smith. "In July, we'll see the good side of earnings reported, leading to a new high on the Dow."

He recommends J.C. Penney, Dayton Hudson, UAL Corp. (parent of United Airlines) and AMR Inc. (American). Some optimism is steeped in adversity.

The OTC Insight investment letter in Walnut Creek, Calif., whose small- to medium-capitalization portfolio rose 64 percent last year, was up 20 percent this year until recent small-cap market traumas sliced that gain by more than half.

"I got my brains beat in, though this downturn was healthy because it shook out sellers and made it a wonderful time to buy," mused OTC Insight editor Jim Collins. "By the third week in July, we'll see how really good earnings for the second quarter were and experience a reversal of the recent trend."

Though he sees a 1 in 4 chance of a correction, Collins predicts a 15 percent gain in small-cap stocks by December and expects the Dow to do "reasonably well. …

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