(December 23) – “Even with the major market indexes up splendidly this year, the stock market remains a place where the have-nots vastly outnumber the haves. Stocks dipping to new lows dominate those reaching new highs,” writes Gretchen Morgenson in The New York Times.
“And while the NASDAQ composite closed on Friday at a record high, up 71.16 percent in 1999, 84.8 percent of NASDAQ stocks are down 10 percent or more from their highs of the year, according to Salomon Smith Barney.
“For months, the bifurcated market has frustrated investors unlucky enough to own shares in companies that are doing fine but that are not market darlings. Now the market’s extreme segmentation is posing genuine problems for the Federal Reserve, whose policy makers meet Tuesday.
“Aiming to keep the economy from overheating, the Fed has raised interest rates three-quarters of a percentage point since June. Rate increases usually put a damper on stock indexes, but not this year. That is because the technology and Internet stocks that are propelling the indexes to record highs are impervious to rising interest-rate pain. Their capital needs are satisfied at low cost by venture capitalists and stock market investors, who have money to burn and pay no attention to rates.
“But the recent rate increases have hurt interest-rate sensitive companies like financial institutions and old-fashioned industrial concerns by increasing their costs of capital. Companies whose shares are in the doldrums cannot turn to the stock market for cheap capital. They must go to banks or the bond market — and rates have risen in both. Yields on 30-year government bonds jumped from 6.16 percent to 6.38 percent.
“And so the Fed finds itself in a corner. On one hand, inflation does not seem to be in evidence across the country. But the economy is considerably stronger than the Fed would like it to be, largely because of consumer spending. And what is driving the consumer into the stores? None other than the rising stick market.