Investing: HSBC recommends shift to U.S. (Friday 2006/10/06)

Investors should reduce holdings of European stocks on concern that rising interest rates will dent economic growth in the region, strategists at HSBC Holdings said Thursday. They advised buying more U.S. shares.

HSBC Holdings cut its recommendation on European stocks to "neutral" from "overweight," meaning it now advises holding the same amount of the shares as their weighting in indexes. HSBC increased an "overweight" stance on U.S. shares.

"Continental Europe is more exposed to the industrial cycle than the U.S., and the interest-rate risk also appears to be greater in this region," a team led by Kevin Gardiner, head of global equity strategy in London, wrote in a report.

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They reiterated "underweight" positions on shares in emerging markets and Asia.

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"We continue to expect global equities to hit new post-bubble highs by year-end," Gardiner said during an interview by telephone. "The news flow will be better than people anticipate."

Europe: View across Atlantic cheers the Continent (Friday 2006/10/06)

As the Dow Jones industrial average stayed above a record breached Wednesday, the Dow Jones Stoxx 600 in London rose to a level not reached in five years.

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The advance Thursday in Europe followed the strongest performance Wednesday by U.S. stocks in seven weeks as a slowdown in service-industry growth and comments by the Fed chairman, Ben Bernanke, bolstered expectations that policy makers may cut rates. Bernanke said during a speech in Washington that the housing market was showing a "substantial correction" and that inflation would recede over time.

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"Investors' thoughts may soon turn to how much the U.S. economy is slowing, but for the time being they will focus on the rosy news," said Oliver Stevens, deputy head of trading at IG Index in Melbourne.

but then again...

Americas: U.S. markets' climb slows (Friday 2006/10/06)

A rally in U.S. stocks lost some steam Thursday as oil prices rebounded and two Federal Reserve officials emphasized the risks of inflation, damping speculation that policy makers might lower interest rates.

The markets kept up their habit of climbing, but the large gains seen early in the week failed to show Thursday.

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"With the volatility of oil prices and various dissecting of the Fed's words, it adds to that uncertainty in the marketplace," said Warren Koontz at Loomis Sayles in Boston.

And from the New York Times:

How Long Will the Dow's Party Last? (Sunday 2006/10/08)

With only 8 of the 30 Dow stocks in up trends, "it's not a real strong profile," [Louise Yamada, managing director of Louise Yamada Technical Research Advisors] said. "The other thing that was not impressive is that there were no bells and whistles" on Tuesday, when the Dow breached its old peak.

When a stock or an index breaks out to a new high, technicians look for signs, like sharply higher trading volume, that the move is the beginning of a new trend, not the end of an old one. These were absent on Tuesday and barely detectable the next day, as the rally continued.

"Under the surface there is some selling going on," Ms. Yamada said. "There may be a limited amount of sustainability" to the rally. On the bright side, she added, there may not be much risk of a deep and protracted decline. "It's very difficult to argue that the Dow is going significantly lower," she said. "A lot of stocks haven't gone anywhere, so I think the worst that could happen is that we go back down to the bottom of the trading range." She described 10,000 as "a major support point."

"That the market does not have the same character as in 2000 is a plus," Ms. Yamada said. "Whether it's got the oomph to go significantly higher is another question."