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Ready Cash Could Reward Wall Street Bulls
November 28, 2004 09:32:00 AM ET
By Kenneth Barry
NEW YORK (Reuters) - Stocks have gained little headway this year but could get a lift over the next couple months from an infusion of cash poised to come into the market from corporations and individuals, Wall Street experts say.
This year the Dow Jones industrial average has risen less than 1 percent. The Standard & Poor's 500 and Nasdaq Composite indexes have fared slightly better, advancing about 6 percent and 5 percent, respectively.
That's quite a comedown from last year's pulse-quickening rises of 25 percent for the Dow, 26 percent for the S&P 500 and 50 percent for the Nasdaq.
Much of the gains have come late in the year and if conditions are right, the indexes could add another 3, 4 or 5 percentage points before Dec. 31, said Philip Dow, director of equity strategy at RBC Dain Rauscher.
``I wouldn't be surprised to see more strength this year,'' Dow said.
MONEY COULD SHIFT INTO STOCKS
Some of the nearly $2 trillion in money market funds could be shifted into stocks if October's pattern is followed, the experts say. Stock mutual funds added a net $15.4 billion, up about $5 billion from September, according to fund research firm Lipper Inc. Much of it came from money market funds that have low returns tied to extraordinarily low short-term interest rates,
Other treasure chests that could lift stocks include companies rewarding their shareholders, corporations paying cash to acquire other companies and fatter paychecks for American workers who invest in stocks.
The potential for a pool of cash to enrich the stock market is likely to extend into January when many individual workers top up their 401(k) retirement accounts, experts say.
Beginning a week before the presidential election, stocks rallied, and experts credited a pause in the rise of oil prices and approaching end to doubts about the presidential election, followed by President Bush's victory at the polls.
EXCHANGE VOLUME RISES
Besides the rise in major stock indexes -- the S&P has strode 8 percent higher -- trading volume on the major exchanges increased, Andrew Clark, senior research analyst for Lipper, said.
``No other rallies this year were followed by any pickup in volume,'' he said.
The indexes' gains were not just the work of speculators, he said. The rise in volume confirmed a widespread change in sentiment after months of reticence by investors, who returned in large numbers to the market.
However, Clark cautioned that one month does not make a trend. While the rise in volume on the New York Stock Exchange and Nasdaq has continued in November, the gain has not been as strong as October's.
Companies have been doing their part to pour money into the stock market, said Charles Biderman, president of TrimTabs Investment Research.
The number of stock repurchase programs by companies went from less than two a day to four or five a day in the latter part of October when the Dow dipped below 10,000, channeling more corporate cash into the market, Biderman said.
COMPANIES PAY CASH
Companies have announced a number of acquisitions to be paid for in cash, helping to lift the stock market, Biderman added. Among recent examples, General Electric Co. (GE) has announced it would buy a fire detection systems company and also said it would acquire a water treatment and services company while the Kmart Holding Corp. (KMRT) acquisition of Sears, Roebuck & Co. (S) included a partial cash compensation.
``If the corporate buybacks and cash takeovers remain firm, that could tip the scale on behalf of the market going higher before Christmas,'' Biderman said.
The stock market can expect another cash boost when Microsoft Corp. (MSFT) delivers on its special $3 a share dividend -- the largest in history -- next week. Biderman said he thinks Microsoft shareholders will reinvest a large chunk in the stock market, most likely in technology companies. Of the $32 billion payout, some $23 billion to $25 billion will probably come back into the market, he said.
Individuals have been doing their share to send money into the stock market, said Biderman. The Treasury Department's daily statement shows how much tax is being withheld from workers' paychecks, and the year-over-year trend has been rising, Biderman said.
Wage and salary income grew by more than 6 percent beginning in late October and more recently has been about 5.2 percent higher than a year ago.
``We have noticed that when wage and salary grows over 5 percent, there is a significant amount of new money coming into the equity market,'' Biderman said.
© 2004 Reuters
November 28, 2004 09:32:00 AM ET
By Kenneth Barry
NEW YORK (Reuters) - Stocks have gained little headway this year but could get a lift over the next couple months from an infusion of cash poised to come into the market from corporations and individuals, Wall Street experts say.
This year the Dow Jones industrial average has risen less than 1 percent. The Standard & Poor's 500 and Nasdaq Composite indexes have fared slightly better, advancing about 6 percent and 5 percent, respectively.
That's quite a comedown from last year's pulse-quickening rises of 25 percent for the Dow, 26 percent for the S&P 500 and 50 percent for the Nasdaq.
Much of the gains have come late in the year and if conditions are right, the indexes could add another 3, 4 or 5 percentage points before Dec. 31, said Philip Dow, director of equity strategy at RBC Dain Rauscher.
``I wouldn't be surprised to see more strength this year,'' Dow said.
MONEY COULD SHIFT INTO STOCKS
Some of the nearly $2 trillion in money market funds could be shifted into stocks if October's pattern is followed, the experts say. Stock mutual funds added a net $15.4 billion, up about $5 billion from September, according to fund research firm Lipper Inc. Much of it came from money market funds that have low returns tied to extraordinarily low short-term interest rates,
Other treasure chests that could lift stocks include companies rewarding their shareholders, corporations paying cash to acquire other companies and fatter paychecks for American workers who invest in stocks.
The potential for a pool of cash to enrich the stock market is likely to extend into January when many individual workers top up their 401(k) retirement accounts, experts say.
Beginning a week before the presidential election, stocks rallied, and experts credited a pause in the rise of oil prices and approaching end to doubts about the presidential election, followed by President Bush's victory at the polls.
EXCHANGE VOLUME RISES
Besides the rise in major stock indexes -- the S&P has strode 8 percent higher -- trading volume on the major exchanges increased, Andrew Clark, senior research analyst for Lipper, said.
``No other rallies this year were followed by any pickup in volume,'' he said.
The indexes' gains were not just the work of speculators, he said. The rise in volume confirmed a widespread change in sentiment after months of reticence by investors, who returned in large numbers to the market.
However, Clark cautioned that one month does not make a trend. While the rise in volume on the New York Stock Exchange and Nasdaq has continued in November, the gain has not been as strong as October's.
Companies have been doing their part to pour money into the stock market, said Charles Biderman, president of TrimTabs Investment Research.
The number of stock repurchase programs by companies went from less than two a day to four or five a day in the latter part of October when the Dow dipped below 10,000, channeling more corporate cash into the market, Biderman said.
COMPANIES PAY CASH
Companies have announced a number of acquisitions to be paid for in cash, helping to lift the stock market, Biderman added. Among recent examples, General Electric Co. (GE) has announced it would buy a fire detection systems company and also said it would acquire a water treatment and services company while the Kmart Holding Corp. (KMRT) acquisition of Sears, Roebuck & Co. (S) included a partial cash compensation.
``If the corporate buybacks and cash takeovers remain firm, that could tip the scale on behalf of the market going higher before Christmas,'' Biderman said.
The stock market can expect another cash boost when Microsoft Corp. (MSFT) delivers on its special $3 a share dividend -- the largest in history -- next week. Biderman said he thinks Microsoft shareholders will reinvest a large chunk in the stock market, most likely in technology companies. Of the $32 billion payout, some $23 billion to $25 billion will probably come back into the market, he said.
Individuals have been doing their share to send money into the stock market, said Biderman. The Treasury Department's daily statement shows how much tax is being withheld from workers' paychecks, and the year-over-year trend has been rising, Biderman said.
Wage and salary income grew by more than 6 percent beginning in late October and more recently has been about 5.2 percent higher than a year ago.
``We have noticed that when wage and salary grows over 5 percent, there is a significant amount of new money coming into the equity market,'' Biderman said.
© 2004 Reuters