Wall Street Waves Goodbye To The Summer Doldrums

After a lackluster summer with the stock market going mainly sideways in response to crude oil price gains and concerns that the mega-hot housing market had begun cooling, investors got a nice shot of good news as August drew to a close. Wall Street welcomed news from the Energy Department on August 24 that stockpiles of heating oil and other distillate fuels are increasing. The positive inventory report ahead of the winter heating season offset the downer cast by climbing oil prices. Further positive news from the Commerce Department on new home sales for July - numbers reported exceeded the 1.33 million home sales forecasted - offset the disappointing numbers on existing home sales that preceded it. Not all news was good news: durable goods numbers for July were significantly off falling 4.9 percent - a steeper decline than the 1.5 percent expected.

Good news offsetting the bad in the oil and housing sector is symptomatic of the pattern on Wall Street this summer - a "swings and roundabouts" mentality has characterized sentiments on Wall Street. Experts expect the market to stay range-bound in light summer trading until after Labor Day. Looking ahead to the fall, experts expect the retail sector to struggle in response to higher oil and gas prices. Earnings warnings are already coming from many retailers, but the high-end segment does not seem to have been adversely affected with Coach Inc., maker of luxury leather goods, announcing that its profits for the first quarter would exceed Wall Street’s forecast.

Rebound Ahead
On the positive side, investment gurus suggest that certain sectors are worth attention. Some tip the semiconductor industry for a rebound noting that 2006 will see an increase in both consumer and corporate spending on technology. Microsoft plans to introduce a new operating system for the first time since Windows 2000, and experts believe this will be catalyst for corporate spending on hardware. Consumers continue to demonstrate a voracious appetite for digital cable, mobile phones, DVD players and other "must-have" communication/entertainment devices. The pundits have been wrong before. Last year’s anticipated corporate spending spree failed to materialize, leaving the microchip makers with a glut of inventory. As a result of a wide-scale bailout by investors, the stocks of many sector leaders now represent a bargain.

Other Wall Street gurus point to the success of mutual funds that specialize in mid-caps (companies with a market value between $2 billion and $10 billion) and suggest that individual investors explore investment opportunities within this group. Potentially there are more bargains to be found in various sectors of this group because mid-caps are not followed as closely as the big companies. Mid-caps offer the higher growth potential of smaller companies and the deeper pockets associated with large-caps. Some experts suggest that investors look for the less "glamorous" companies that benefit from key economic trends (for example: building materials needed by remodelers and home builders) industries slated for a rebound (possibly telecommunications and semiconductors) and those that support fast-growing segments of the economy (like: oil drilling companies or drilling services).

Wherever your homework might take you, get ready for resurgence in fall as traders ditch a more leisurely summer schedule and rev up for the last quarter of 2005.

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