By Clyde Noel

Stock Report

Last week’s rally helped the Dow Jones industrials recover nearly half the losses from the Sept. 11 terrorist attacks, but get ready for a volatile week and month. Remember, it’s October.

We are in a politically sensitive market. If there were another terrorist attack, the market would flounder because it would be an attack on consumer confidence. Conversely, if we found bin Laden, we would see an 800 price jump.

Last week, the Dow Jones industrials, loaded with large cap stocks, was up 611 points, or 7.4 percent. The Nasdaq, which includes all sectors of stock issues, also gained 75.61 points and increased 5.3 percent to 1,498.

The Town Crier index is made up of 50 local Silicon Valley stocks that are technically based and the increase was only 1.8 percent. Investors are still not willing to put their money in high-tech.

In a rising market, local companies like Adobe were down 4.3 percent for week. Other major high-tech companies down were: Applied Materials, down 2.7 percent; Agilent, down 3 percent; Apple Computer, down 1.5 percent; BEA Systems, down 7.25 percent; KLA Tencor, down 6.8 percent; Network Appliance, down 15.21 percent; Symantec, down 6.20 percent ; and Veritas, down 1.8 percent.

When you look at statistics to see where we are, you have to start with consumer confidence and consumer sentiment. That tells you where the economy is heading.

In the past, a Federal Reserve cut on the interest rate brought investors back in the market. Analysts believe the Fed will lower the interest rate 50 points this week but it’s already factored in the market. Some believe the Fed will have to cut the rates by an aggressive 75 basis points to fuel a rally on Wall Street.

With the political and military arenas still uncertain, it’s a good time to sit on the sidelines before committing to any stocks. The market is a hard place to be short term because we haven’t seen the bottom yet.

For the long term, it could be thrifty to look at each stock in the portfolio and ask, would I buy this now for the long term? As you review each stock, keep in mind it’s important to have diversification in the market right now.

Given the present environment we’re in, big cap stocks are going to outperform small-caps. A nice quiet war could offer a gradual increase in value for the market. However, if big events happen in the military, then past history will again show October is not a good month for investors.

For doom and gloom investors, what’s the alternative to equities? Money market accounts now yield just 2.93 percent, down from 6.14 percent a year ago. The run-up in U.S. government bonds - a safe haven in times of trouble - has pushed the yield on ten-year notes down to 4.55 percent from 4.84 percent. And the yields are sure to go lower this week when the Fed cuts rates another 50 basis points. For the long term, stocks still seem like the best place to be.

Noel, a seasoned investor, covers the stock market for the Town Crier.