High Noon on Wall Street

A funny thing happened on the way to the stock market Friday. The market matadors couldn't kill a limping bull.
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A funny thing happened on the way to the stock market Friday. The market matadors couldn't kill a limping bull.

It was supposed to be a disastrous day for the bulls, one in which, it was widely thought, we would see another one of those bloody, ulcer-producing triple-digit declines in the Dow following grim early morning news -- an unexpected drop in May retail sales, the largest in eight months. No two ways about it. The market, given such news, was ripe for a vicious decline.

But it never happened even though a big drop in stock prices is what the futures signaled for the day just prior to the market opening, Acting instead like Samson, Hercules and Rafa Nadal all wrapped up into one, the market took the bum tidings in stride and the Dow actually rose 38.5 points on the day.

What made the day's rise in stock prices so newsworthy was that the disappointing May report -- a 1.2% sales drop, versus an expected 0.2% gain -- was viewed in many quarters as another ominous sign of a weakening U.S. economy, which is usually the basis for a market selloff and the last thing jittery investors want to hear about these days.

Accordingly, several pros, among them Los Angeles money manager Arnold Silver of A. Silver Associates, considered the day's showing a market victory, a possible sign of sunnier days ahead. Silver likened the day's windup to "being hit by a speeding car and ending up with a tiny scratch. It gave the bulls balls and something to cheer about,' he says.

In effect, Friday's market -- which actually kicked off on the losing side and later turned into a standoff between the bulls and the bears before closing higher on the day -- was reminiscent of one of those tense Western showdowns, such as the one in High Noon, a 1952 movie classic in which four bad guys were foiled in their plan to kill the sheriff.

Silver, a bear for some time, is now having some second thoughts. One positive event in an environment rife with lots of worries doesn't make for a bull market, he notes, but he believes that the market's ability to shrug off the bad May sales report was a sign of renewed investor confidence and that the recent weakness in stock prices -- about a 12% decline since late April -- may be on its last legs.

Silver is quick to point out that he still has numerous concerns, such as a relapse in the housing market, a new banking crisis stemming from huge losses in commercial real estate, the likelihood that unemployment will remain high for several years, and spreading European sovereign debt problems.

"I'm not telling you we're over the hump," Silver says, "but you don't win fighting momentum, and as of now, the market looks like it's gaining momentum."

That also reflects the thinking of Fred Dickson, the chief investment strategist of D.A. Davidson & Co., a Northwestern regional brokerage biggie headquartered in Great Falls, Mont. "I think we're close to the bottom of the correction," he says. "Maybe another sloppy month with high volatility and that's it."

Dickson, a former strategist at Goldman Sachs and one of Wall Street's more sane thinkers, sees a rising market by year end, with the Dow wrapping up 2010 at about 11,500, a gain of nearly 1,300 points from current levels.

One reason he's gung ho is his belief the economy is clearly on the road to recovery. "It's only traveling 40 miles an hour in a zone posted for 70, but acceleration is on the way," he says. Supporting this view, he explains, are increased investment business spending, continued high levels of government spending, expanding export manufacturing sales, such as Boeing aircraft, Caterpillar tractors and Otis elevators, and a slow pickup in consumer spending despite high unemployment.

Dickson figures we'll see 3% GDP growth both this year and next year, with corporate earnings climbing 30% in 2010 and another 10% to 15% in 2011.

Another market plus is his view that the worst of the European debt problems is behind us. He hastens to note he's not alone in this belief since similar thinking spawned a rally in the Euro, which, in turn. triggered a modest rise in global equities, commodities and U.S. stocks.

John Wayne once said "courage is being scared to death ... and saddling up anyway."

Dickson echoes similar thoughts when it comes to the hordes of scared investors. Since he sees lofty gains ahead, Dickson also thinks investors should saddle up, in essence moving from the sidelines to the playing field by putting money to work in U.S. stocks. His investment favorites: technology, industrial manufacturers that sell to the Far East, retailers that cater to low and middle income America and energy.

Like Silver, Dickson is not oblivious to the risks, which he pinpoints as election uncertainties (the makeup of Congress), the British Petroleum oil spill, which could lead to higher oil prices and impact the economy of the southern Gulf Coast, the possibility the European debt crisis could be ignited, and geopolitical dangers, notably in the Middle East and the Koreas.

A word of caution: Dickson may be right on in his bullish sentiment. But it's worth keeping in mind that John Wayne, unlike Gary Cooper in High Noon, died in several of his films. Given all the risks and market nervousness, you can't rule out that stocks might not follow suit.

What do you think? E-mail me at Dandordan@aol.com.

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