AAMG - Past Market Views - Its a Two Tier Market

Past Market Views
It's a Two Tier Market
(Like it or not)

If you are in the Tech and Net stocks, you are making money in this market, despite the fact that these stock sell, in many cases, at five hundred times sales and don’t have a prayer of seeing the first sign of a profit in the foreseeable future. Right now, they are the leaders. These T&N stocks have taken the S&P and Nasdaq market to new highs. There are only a handful of them, but they have done a job.

For the vast majority of stocks traded on the New York Stock Exchange and on the Nasdaq, it’s been a miserable year. In a recent fax from Dr. Ed Yardeni of Deutsche Bank, Alex Brown, he said that "the bull market has become narrower and narrower with close to 70% of stocks traded on the NYSE trading below where they were a year ago." He estimates that stocks are more than 50% overpriced based on forward consensus earnings estimates. This is putting it on the line and saying it as it is.

We have been running some weekly numbers of the stocks that have advanced and those that have declined, plus those that have been making new 52 week highs and those that are making new lows. These numbers are tabulated below and make an interesting story of what the market is really doing vs. what the averages are telling us:

WEEKLY STATISTICS

ADVANCE/DECLINE - 52 WEEK HIGHS & LOWS - DOW GAIN / LOSS

Week ending	Advances	Declines	Difference	Highs	Lows	Differences	%Dow
12/10	1134	2340	-1206	241	884	-642	-0.54
12/03	1620	1853	-233	162	780	-618	2.71
11/26	964	2472	-1508	121	576	-455	-0.14
11/19	1655	1783	-128	216	423	-207	2.18
11/12	1547	1899	-352	186	341	-155	0.6
11/05	2098	1350	748	198	312	-114	-0.25
10/29	2275	1198	1077	166	706	-540	2.5
10/22	1690	1721	-31	83	896	-813	4.5
10/15	714	2797	-2083	90	814	-724	-5.9
10/08	1770	1642	128	137	450	-313	3.67
10/01	1854	1609	245	106	597	-591	-0.06
9/24	767	2668	-1901	91	659	-568	-4.85
9/17	1021	2394	-1373	136	505	-369	-2.04

The column depicting the weekly differences between the new highs and new lows is of particular interest. In each of the last thirteen weeks, there have been a significant number of new lows compared to the new highs. Even in weeks where the DJIA has been up by several percentage points this has held true. In fact for the week ending December 10^th of the 3690 issues that traded, 884 or 23.9% of them were at new lows. Couple this with the fact that the Advance/Decline line has been moving steadily lower since April of 1998. What this means is that the vast majority of stocks, on all exchanges and the over-the-counter market, have been in a bear market for the better past of the last eighteen months.

Unfortunately, the general public is only hearing the good news of the daily new record highs in the Nasdaq or S&P 500 averages. The bullishness on the part of the "talking heads" on CNBC and other financial broadcasts is very misleading. They are not reporting that the vast majority of stocks are in a bear market that is being masked by wild and speculative action in the T&N group.

For the value and equity-income investor this really is good news. If the average bear market has a duration of eighteen months to two years, then the worst is behind us, and the light at the end of the tunnel is getting brighter. One of the truisms of the bear is that he always corrects the excess in price-earning ratios. For many NYSE stocks, this has already taken place. High quality stocks, in growing industries are now selling at very reasonable multiples. So the worst may be over for quality, but it remains to be seen what will happen to those that are invested in the highflying T&N stocks.

Gordon B. Lamb
Jeffrey M. Campbell
December 13, 1999

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