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Wall Street Still in the Doldrums - 2001-08-23


The Dow Jones Industrial Average lost almost 0.5 percent to close at 10,229 Thursday. The Nasdaq composite dropped nearly 1 percent to 1,842. The S&P 500 index lost a quarter percent to 1,162.

The technology bell-weather Lucent expects to return to profitability next year. However, this does not signal a turnaround in the sector. Instead it is because the company has slashed 50,000 jobs and sold off many parts of its operation. Lucent is trying to recover from a position in which its shares have lost more than 80 percent of their value in the last twelve months.

The latest unemployment figures contributed to the poor performance on Wall Street. There were 8,000 new jobless claims last week when analysts had only expected 5,000. Overall unemployment figures in the country are still low. But these latest numbers simply reiterate the fact that the U.S. economy is not yet ready to bounce back.

Looking to the strength of the dollar. For the day the U.S. currency was down marginally against both the yen and the euro. It finished up, slightly, against the British pound.

The sluggish U.S. economy continues to create a great deal of uncertainty for small investors. But some analysts argue now is the time for people to actually start buying shares in companies considered risky.

Will Braman of John Hancock explains: "Expectations a year, a year and a half ago, were very very high indeed and companies simply couldn't live up to those expectations. What has happened in the last twelve to eighteen months? Expectations and reality have fallen quite dramatically. Then we add to that the fact the Fed has cut rates by 300 basis points year-to-date. In every market cycle in the past twenty to thirty years, six to twelve months after a period of sustained interest rate cuts and a lowering of expectations, returns have favored risk-oriented assets."

Another area facing difficulty is the retail sector. Consumers in the U.S. continue to shy away from the more expensive retail chains. The Limited and Intimate Brands, owner's of Victoria's Secret, both reported lower than expected second quarter profits. They join The Gap which last week announced the same thing. But Barnes and Noble the nation's largest bookstore chain, and Krispy Kreme, both reported sales which either met expectations or surpassed them. That means consumers in the U.S. may not be buying expensive clothes but they are buying books and donuts.

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