Good Friday morning to you. If you get carried away by foreboding terms, today is rich with them. The all-familiar warning to Julius Caesar in Shakespeare’s play ‘beware the Ides’ has traversed the ages with a sense of foreboding. But the day itself was no more foreboding than any other day in Caesar or in Shakespeare’s time. The term ‘Ides’ comes from the earliest Roman calendar, according to Borgna Brunner of The Roman calendar organized its months around three days, each of which served as a reference point for counting the other days. Kalends was the first day of the month, Nones, the fifth or the seventh day, depending on the month, and Ides was the 15th day in March, May, July, and October and the 13th in the other months. Another phrase of forbiddance heard every so often is ‘Triple Witching Friday’. The term refers to the final hour of trading before equity options, index options, and index futures contracts expire. Because of contract schedules, a triple witching hour occurs four times a year, each time marking heavier than usual trading and greater volatility. Now that hocus-pocus is out of the way, let’s deal with some real information. The week’s numbers were more mixed than last week, but on balance, a continued recovery remains likely. Retail sales were considerably weaker than expected, but the data are preliminary. Given the seeming disparity with the other evidence, such as high unit vehicle sales and favorable chain store data, it is reasonable to expect that these numbers will be revised higher in months to come.

The week has been an exciting one for stock investors as proof of a turn in the economy mounted.  Notably, in yesterday’s Congressional testimony, Mr. Greenspan said the economy is “already improving,” revising comments made before Congress just a week earlier.  Professionals on market trading floors say this rally represents real buyers, not just short-coverers.  Also encouraging is the fact that the rally is more orderly than previous ‘panic’ rallies where money managers feared being left behind and, consequently, over-inflated stock prices as they bought in at any cost.

The economy is coming out of, or may be out of recession.  Would somebody please notify the market?  Positive economic news is becoming almost commonplace, but its market impact has been mostly counter-intuitive.  In a bear market bad news is bad news and good news is sometimes bad news.  Many of the favorable economic releases of late have been greeted with fears of inflation and higher interest.  Yesterday, Jack Guynn, Atlanta Fed. President and non-voting member of Greenspan’s inflation police, knocked the wind out of the struggling market’s sails when he said that the Fed stood ready to raise rates at the first sign of inflation.  The S&P 500 and the NASDAQ dropped 1% and 1.5%, respectively on his comments.  If Mr. Guynn’s understanding his counterparts’ positions is true, then the Fed has learned NOTHING about the productivity miracle of the 90’s.  I think they have and that Mr. Guynn doesn’t speak for the majority. 

Remember the sensation caused by the all-girl rock bands in the early sixties?  Doo-Wop ‘classics’ like He’s a Rebel and Da Doo Ron Ron by the Crystals and The Leader of the Pack by the Shangri Las filled the airways.  The early 2000’s might well be remembered for the exploits of Mr. Kenneth Lay, the rebel, and his pack of execs and auditors, who have wrought their own brand of havoc on our culture.  It’s hard to go anywhere without hearing people talk about Enron and its massive and complex web of greed and deceit. 

As we pointed out last week, the ‘January Effect’ never materialized.  Typically, January’s market volume is among the highest of the year as 401-K’s and corporate retirement plans receive their largest contributions.  In addition, investors come back to the markets in January to replace stock they sold for tax-losses at the end of the prior year.  The scarcity of enthusiastic buyers and a general malaise among investors weighed heavily on last month’s markets.  The S&P 500 declined 1.5%, the Dow declined .91%, and the NASDAQ fell by .82%.  The S&P 600, the index of small companies managed a gain of just less than 1%.  During the five Januarys prior this one, funds flowing into equity mutual funds averaged 8.8 billion dollars in the first two weeks.  The first two weeks of this January saw the exit of $4.7 billion from equity mutual funds, according to TrimTabs, a fund tracking service. 

There is an old adage on Wall Street that says, ‘as goes January, so goes the year.’  The indicator has accurately predicted the market’s direction for the full year in 48 of the past 51 years.  The Vietnam War affected the results of two of the three incorrectly predicted years just as September 11th may impact this year’s results.  But if the indicator has any validity at all, it doesn’t look like 2002 will provide the comeback we were hoping for. 

Earnings season stirs the market like few other forces, but especially in these times of economic uncertainty.  Investors and analysts hang on every word uttered as managers discuss their results for the quarter and hint at what their future might bring.  Body language, pauses, annunciations, and emphases are all noted and endlessly scrutinized.  Early in the week, the news was decidedly negative as Intel, Juniper Networks, and RF Micro, followed by General Motors, JP Morgan, and others disappointed with their earnings releases. Then on Wednesday afternoon, the tide shifted with positive earnings news from Advanced Micro, Compaq, Symantec fueling the evening market programs.  On Thursday, the markets turned positive, reversing their four-day slide. 

The tug-of-war between the Bulls and the Bears continues as analysts and investors fret over half-full or half-empty scenarios.  There is little argument that the economic numbers suggest a bottoming in the economy.  The rise in unemployment is slowing, consumer confidence is improving, commodities’ prices are rising from their lows, and bond prices are declining.  The big question centers on the speed of the recovery and the vitality of corporate earnings.  The stock indexes, historically the best leading indicators, are signaling recovery sooner, rather than later.  The NASDAQ Composite index reached a six-month high on Wednesday.