Are we near a market bottom? That's the question on every investor's mind this week, even as the stock market falls another 500+ points in Wednesday trading.
Lord knows we're on uncharted terrain here, and that we've experienced enough false bottoms to last us a lifetime. But increasingly, more and more economists are beginning to believe that we are near what the market calls "capitulation"; where enough is enough and the buyers began flooding back into the market.
Exhibit "A" is Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., who told Tech Ticker today that we're near that foggy capitulation line. Sonders says that outflows from mutual funds in the first two weeks of October exceeded the record $75 billion of redemptions set for the entire month of September. Furthermore, outflows are, more and more, are coming from hard-hit sectors like commodities (gold and oil), and overseas, emerging markets in places like China, India and Russia. (That's happening because U.S. consumers are buying less goods and services from foreign economies).
Says Sonders, via Tech Ticker; "That level of "I give up, get me out"-type activity -- which is also evident in massive redemptions from hedge funds - is typically associated with market bottoms. Conversely, mutual fund investors were most bullish at the market's peak in early 2000." Sonders maintains that while the end may be near, investors should still stock to fundamentals -- have a plan, stick to it, stay diversified and periodically rebalance.
And if you haven't gotten out by now, don't sell. You'll miss the market rebound and cash, as an asset wealth creators, barely beats inflation. Suffice to say that Sonders thinks that our best bet for long-term market gains is to ride out what's left of this roller-coaster market.
When we do hit bottom, historically that means we're about 60% through what appears to be an economy already in recession.
Of course, tell that to Yahoo, which announced plans to cut 10% of its workforce. Its Q3 numbers are out and they don't look good. Yahoo reported what the Associated Press calls "anemic" 1 percent growth in revenue—$1.786 billion—and a 19.6 drop in net income to $153 million. Yahoo's stock is floundering, trading at around $12 per share (recall that Yahoo stock was trading around $33 per share last June, when Microsoft was window-shopping).
One analyst thinks that Yahoo's Q3 experience is a survivable one, especially when Yahoo finishes slashing 1,500 jobs. “If management follows through with its promise to reduce headcount by 10 percent by the end of 2008, we could see a possible 300 bps improvement in margins by the end of 2009.” Currently, Bernstein has cut his price target for Yahoo stock at between $16 and $18 per share.
Again, there's not a lot of good news in the technology side of the stock market right now. But, as the song says, the sun will come out tomorrow.
And tomorrow can't come soon enough.