Pessimistic
investor sentiment may be due for a reversal
There is no more downbeat day on the U.S. calendar than
Sept. 11. Americans are glum or angry or both, for a variety
of conflicting reasons.
Broadly based public sentiments frequently express themselves
in daily stock trading. The first 9/11 anniversary, in
2002, fit the pattern, as stock prices on the anniversary
date began a retreat that lasted until the market reached
its low for the year in early October.
Last year, the slippage was similar, though the market
had reached its low for the year in April.
This time, despite heightened political and media attention
in the fifth year after the attacks and the coming midterm
elections, Monday's anniversary was vague from a stock
market point of view. Major stock indexes inched higher
in moderate trading, after losing ground slightly last
week and opening lower Monday morning.
Ironically, if stock prices moved past the 9/11 downer
Monday, one reason might be that investor sentiment already
has been dark for a while. Investor pessimism is a highly
probable indicator of a stock market rally.
Veteran market analyst Steve Leuthold noted the persistent
outflow of investor cash from U.S. equity mutual funds
in the last four months in the face of an uncharacteristic
summer rally.
"This degree of caution, skepticism and bearishness
is quite unusual. I view it as quite bullish on a tactical
basis," Leuthold Group said in its September report
to clients.
Similarly, weak sentiment indicators are one of the factors
that led technical analyst John Kosar of Asbury Research
to conclude that the summer rally has more life and looks
as if it's about two-thirds through its expected cycle.
Paraphrasing philosopher Friedrich Nietzsche, Jack Ablin,
chief investment officer at Harris Bank, says the depressing
effects of the Federal Reserve's two-year campaign to
raise interest rates have not seriously wounded the stock
market: "What doesn't kill the market makes it stronger,"
he said in a note to investors.
A more concrete reason for post-9/11 optimism this year
concerns the issue that, for many Americans, lies at the
heart of U.S. involvement in the Middle East: oil.
In one of his stranger assertions on "Meet the Press"
Sunday, Vice President Dick Cheney invited Americans to
contemplate the mischief that Iraqi dictator Saddam Hussein
could be getting into these days, with his treasury swollen
by oil revenue at $65 a barrel or $70 a barrel.
No one can say whether Hussein would still be in power
today without the U.S. invasion of Iraq in 2003. But it's
folly to suggest that the prolonged American entanglement
in that country has not been a principal factor in higher
oil prices.
Iraq is a long way from its pre-invasion oil output,
though the nation's oil minister said Monday the crisis
is moderating. Separately, OPEC oil ministers said they
plan to maintain their current output schedules, despite
a drop of more than $10 a barrel in oil futures since
mid-July, to $65.61 in Monday's trading.
That's good news, while it lasts. The reversal in the
oil price spike, and the corresponding erosion of share
prices for Exxon Mobil and the rest of Big Oil, could
end at any time.
But the current trend has taken energy stocks out of
their leadership position in the stock market and enabled
a once-popular market locomotive, technology, to flex
its muscles.
Whether tech stocks are a good buy is problematic. Leuthold
doesn't think so. But there's no doubt that a rally in
tech stocks can attract individual investors back into
U.S. stocks. After leading a summer rally, tech stocks
such as Apple Computer have helped ward off the market's
9/11 blues.
