Stock Smarts: Nasdaq 5000 Three Years Later  

Three years ago we had peace, prosperity and a sizzling hot stock market.  Monday, March 10, 2003 marks the third anniversary of the Nasdaq’s all-time closing high of 5,048. And how things have changed:

Since Nasdaq 5,048:

Then Now
Peace War looms
Prosperity Recovery
CEOs were heroes CEOs are villains

Friday's Close: 1,305

Back then it seems we had a perfect storm of positive news boosting the market. Now it appears we have the reverse. So where to from here?

Charles Payne of Wall Street Strategies says there’s a new paradigm for the market that he calls “The Age of Meandering.” He says we will be in a range-bound market for a long time where we will see periodic rallies.  He points to the amount of money that is on the sidelines and says occasionally that money will go to work causing magnificent spikes like the one we saw in October. But for the most part the market’s fundamentals will take a while to recover.  He says on a psychological level investors need to become accustomed to living with terrorism and geopolitical concerns and he doesn’t think we have done that yet.  Still, he thinks a bull market doesn’t mean that the Dow goes up 100 to 200 points a day - it means that the bias is to the upside, and we could get there in another year.

Jonathan Hoenig of Capitalistpig Asset Management thinks the next move for the market is lower.  He points out that the Japanese stock market has remained depressed for twenty years, which proves that a market that is down doesn’t necessarily bounce back quickly.  He says if you are too skittish to short the major indices here, the best way to try and make money is in bonds, as it’s the only bull market right now.

Jonas Max Ferris of MAXfunds.com points out that the war situation is the biggest fiscal event for the global economy in our time, and he says the only reason the bonds are still rallying is because people are running to their perceived relative safety.  But he says on a psychological level, all the negative news could signal an approaching end to the downside for stocks in the same way that the perfect storm of positive news in March 2000 turned out to be an end to the market’s upswing.

Hilary Kramer of FOX Business News says the market is entirely focused on war and the psychological impact of going to war and liberating Iraq will free up money and send it flowing into the market. But she says you need to stay balanced between stocks and bonds.

Dagen McDowell of FOX Business News agrees that a quick victory in Iraq could force the money that is on the sidelines into the market and turn it around very quickly.

Cash Count: Some Past Stock Picks

Hilary's Loser: American Express (AXP)
Picked on Jan. 5, 2002
DOWN 12 percent since then
Friday's close (3-7-03): $33.07

Hilary points out that she misspoke last week when she said she had recommended AXP at lower prices.  In fact, the stock was trading higher when she recommended it on past shows, but she says she still likes it and it will enjoy a comeback when war concerns are over.

Hilary's Winner: Intel (INTC)
Picked on Oct. 5, 2002
UP 17 percent since then
Friday's close (3-7-03): $16.01

Hilary still like Intel.  She says a new chip for wireless computers will improve profits at this company.

Jonathan's Loser: Sonic (SONC)
Picked on Feb. 2, 2002
DOWN 15 percent since then
Friday's close (3-7-03): $21.35

Jonathan no longer owns Sonic.  He says it went on a wild ride with a lot of other restaurant stocks, up 20 percent form where he had picked it at one point, but it is a perfect example of why you can’t just buy and hold.  You need to keep on eye on these big winners and sell them if they start to lose strength.

Jonathan's Winner: San Juan Royalty Trust (SJT)
Picked on Nov. 9, 2002
UP 20 percent since then
Friday's close (3-7-03): $15.64

He still likes SJT and still owns it but he is not adding any new money to it right now.  But he says you have to watch it closely for any signs of weakness that could indicate it’s time to sell.

Charles' Loser: Oracle (ORCL)
Picked on Jan. 11, 2003
DOWN 15 percent since then
Friday's close (3-7-03): $11.06

Charles still likes the stock. He believes this company will still turn around.

Charles' Winner: Symantec (SYMC)
Picked on Oct. 13, 2001
UP 81 percent since then
Friday's close: $43.54

Charles says he still likes the stock, but right now he says it’s more of a trading vehicle and will be range-bound. But if it dropped considerably he would consider it a buy again.

Mutual Fund Face-Off: Montel’s Money

Talk show host Montel Williams is looking for a way to get aggressive with his investments once the question of war is resolved.  Dagen and Jonas faced off over the two funds they think Montel should consider buying.

Jonas - iShares S&P Global Energy
1-Year (as of 3-7-03): DOWN 13.5 percent
Minimum Investment (as of 3-7-03): $45.15
Expenses: $6.50 for every $1,000 invested

Dagen – Vanguard High-Yield Corporate Bond
1-Year (as of 3-7-03): UP 4.3 percent
Minimum Investment: $3000
Expenses: $2.70 for every $1,000 invested

Money Mail

Jonathan, Charles and Dagen answered viewer questions.

Question: If the market factors in future events, why does everyone think the market will pop after the bombs drop?

Conventional wisdom has always been that the stock market predicts what will happen in the economy.  Charles says he thinks this market is doing a lot of predicting, but it’s predicting uncertainty.  But besides bombs, it has also been predicting other events like the poor economy, the negative employment numbers and big downgrades like Intel.   Dagen says investors are really paralyzed.   People are saying one thing and doing another and that uncertainty can be a buying opportunity for bolder investors. Jonathan says the fact that the market tends to anticipate events, rather than reflect them, is an important point.  But he says if the best that the bulls can come up with is that we’ll get a pop in stocks if war breaks out concerns him and is not a good reason to be in stocks right now.

Question: Past wars point to a significant drop in oil prices very shortly after hostilities begin. Will history repeat itself?

Dagen says you could still see oil prices drop if a war begins, but this time could be different because oil prices could creep back up and stay relatively high because oil is scarce around the globe and Venezuela is not going to get back to producing the same amount of oil it did before the strike there broke out.  Charles says he thinks crude oil is going to go down but natural gas will stay high. Jonathan says the weakness in the dollar will keep oil higher.

Question: What happens to Lucent (LU) now that the reverse stock split has been approved?

Jonathan says he wouldn’t buy it here, but if you own it, be sure to use a stop loss to limit your downside.  Charles says there has been three reverse stock splits recently and those stocks hung in there for a while against conventional wisdom because the short sellers always attack these splits. But ultimately the stock price will reflect a company’s fundamentals and Lucent doesn’t look good.  Dagen says the split was just cosmetic, and it will take a lot more to “pretty up this pig called Lucent.”