WALL STREET IS A
TWO-WAY STREET
Savers and investors would do well to remember that Wall Street is a two-way street. The markets have been so good for so long, with a few exceptions, that sometimes people think they are handing out free money on Wall Street, and that it's a so-called one-way street, where stocks have no alternative but to go up. Of course, that is foolishness.
That said, it occurs to me that Wall Street is a two-way street in more than one sense. It has become a divergence between the so-called New Economy, and the old economy. I know numbers are sometimes confusing, but they can tell a big story, so bear with me a moment. As of a week ago, and for the week ending February 11th, the NASDAQ Composite was up 3.6%, the small cap Russell 2000 gained 2.2%, but the S&P 500 lost 2.6%, and the Dow Industrials lost 4.9%. If you step back and look at the first two weeks of February, a similar tale is told. For that period of time, the NASDAQ was up 11.5%, the Russell 2000 by 8.2%, but again, the S&P 500 was off .5%, and the Dow Industrials were off 4.7%. Still further, if you look at the first six weeks of the year, ending February 11th, the story repeats itself. The NASDAQ Composite was up 8%, the Russell 2000 up 6.4%, while the S&P 500 was down 5.6%, and the Dow Industrials down 9.3%.
The figures, I think, are quite telling. While the Dow Industrials have admittedly been revamped somewhat, recently adding names like Intel and Microsoft to their list, and the S&P 500 certainly has some fine companies in it, I do not think it unfair to say that the division we are seeing between them, vs. the performance of the NASDAQ Composite Index and the small cap Russell 2000 Index, is a clear example of the two different economies-- not only in our country, but around the world.
Investors and money managers are clearly choosing the New Economy, the high-tech economy, over the labor-intensive, capital intensive, and energy-intensive old economy. Speaking of energy, another Index, the Dow Transportation Index, year-to-date, as of February 11th, was off 18.2%. Why? Because the transportation Index is made up largely of railroads, truckers and airlines. The recent run-up in energy prices is wreaking havoc with this index, but higher energy prices have minimal effects on the likes of Intel or Microsoft. Please, by the way, do not be confused and construe this as my recommendation for Intel or Microsoft stocks-I am merely using them as big-name and obvious technology proxies that most people will be familiar with. But the central point remains. We do have two economies at work in our country today. Trying to watch them, differentiate between them and understand which has a bigger impact on everyone's overall life, is exactly a part of the wrestling match that the Federal Reserve Board goes through on a daily basis. It isn't easy, but savers, investors, and perhaps more importantly, professional money managers, have drawn the distinctions, and they are choosing the New Economy. So now, more than ever, Wall Street is a two-way street.
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Staying with investing a moment longer; Peter Lynch, of Fidelity Funds, has long contended that a good deal of successful investing depends upon common sense. Sometimes people try to make successful investing too complicated. Goodness knows, it's hard enough, without adding additional confusion. If we look at where America is going, there are broad sectors that would seem appealing for investors, in the next decade, at least. Certainly, the above-mentioned technology would be an optimum area; it is driving the economy, and it is enabling business to be more productive, and that is a wonderful thing. But beyond that, there is the graying of America, and its implications: there are three other major areas that are glaring, at least in my mind, the first being health care. As we get older, our health care requirements, as a nation, are going to grow. The second area is that of financial services. I think my industry will boom, and increased numbers of people will be seeking help in the years ahead. Recreation and leisure-time activities are also an area where extra dollars will go.
I'm sure there are other areas that will surprise us over the next decade, but overall I believe that ten years from now we will find that those four areas-technology, health care, financial services and recreation and entertainment- are very rewarding for savers and investors.
(Tom Butenhoff is a First Vice President with J. E. Liss & Company in Milwaukee. The views are his and not necessarily those of Liss Financial Services or the Job Connection/Hiring Network.)