It appears that after last week's Federal Reserve lowering of interest rates, a springboard is being built for stronger performances later this year. Lately, the market is better at accepting bad economic and corporate news and investors now focus on the next earnings period in a positive manner.
For the week, the Dow Jones industrials were up 490 points, only 421 points short of 11,722, when the Dow peaked in January 2000. The Nasdaq was up 92 points last week, but still well below its peak of 5,048 in March 2000.
The Town Crier index was up 6.18 percent for the week, and is now losing only $380 on the original investment of $50,000 since Jan. 1. Most of the action was across the board with all companies, but several companies like BEA Systems were up 19.68 percent; Harmonic was up 31,58 percent; Hewlett- Packard increased 14 percent; Rational Software was up 16.68 percent; and Varian Semiconductor rose 16 percent.
Even though the stock market tone has improved this month, corporate earnings are still being reported lower. Consumers are spending, and corporations are not.
There are still problems in the technical sector. Palm, a Silicon Valley firm, saw its shares tumble to an all-time low of $4.71 after it slashed its quarterly revenue and earnings estimates because of softening sales.
Agilent, which makes equipment to test networks, lost $2.72 to $36, saying its quarterly profits fell 42 percent as the communications industry
collapsed. Agilent is now down more than 34 percent for the year.
Investors were positive on the possible purchase of struggling Lucent Technologies, the spin-off from the old AT&T stock. French rival, Alcatel has started talks with Lucent management. If the merger takes place, it could make an impact with the telecommunications equipment suppliers in Silicon Valley.
Technical stocks will come back, but slowly. An example is Cisco Systems, since it is in one of those areas that will be slow to return to previous heights. However, look for it to take off at the beginning of next year. It is extremely well positioned, even though it is in a tough market. Cisco is a long-term appeal stock, not ready for purchase.
Another interesting situation on deck this week is graphics-chip maker Nvidia (Nasdaq: NVDA), which is expected to post a 39-cent-per-share profit for its first quarter. The stock has increased 163.35 percent since Jan. 1.
Wall Street's jump in prices began last Wednesday, the day after the Fed cut its key funds rate to 4 percent. That move bolstered optimism that the economy can rebound in the second half of the year. Lower interest rates cut the cost of borrowing and encourage spending by businesses and consumers alike.
As the nation's bank cut its prime lending rate to 7 percent, it resulted in the borrowing cost for millions of Americans at the lowest level in seven years.
So what's an investor to do? Have patience and invest in great companies that are experiencing low prices. Sounds simple, but hard to put into practice.
Noel, a seasoned investor, covers the stock market for the Town Crier.