The Markets: Another One-Day Summer Rally

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After a Monday in which everyone with any real money on Wall Street sat on the curb and watched, the markets got up Tuesday, pulled into traffic, and started moving. By afternoon the Dow had picked up more than 150 points and the NASDAQ more than 30 — not even a rally, much less the start of that long-dreamed-of "summer rally," but still buying. Which means that somebody was optimistic about something.

The reasoning, it seems, is yet another twist on the axiom that "bad news for Main Street is good news for Wall Street." That saw is predicated on the notion that bad economic news means the Fed is more likely to cut interest rates, cheering stocks and bonds alike with the prospect of cheaper money and stimulated corporate investment. And bad news there was — the Conference Board reported that consumer confidence fell in a July of stagnant stock prices and rising layoffs, and the National Association of Purchasing Managers said that manufacturing, in a coma for many months now, was still getting worse.

But if bad economic news is all it takes to rouse Wall Streeters from their morbid agnosticism, the Dow would have hit 36,000 back in March. These days, good news from Main Street is just plain good news. And Tuesday actually cooperated, if only in the wan, incremental proportions that is the best good news we get these days.

The news: According to the Commerce Department, consumer spending rose 0.4 percent in June after a 0.3-percent gain in May. And incomes rose 0.3 percent in June after rising 0.2 percent in May. Both figures were slightly above expectations — and, along with some strong weekly chain-store retail sales numbers reported by the Redbook Retail Sales Average and the Bank of Tokyo-Mitsubishi, were eagerly taken as signs that those tax rebate checks — even though the first $4 billion of them just arrived in mailboxes last week.

Good news. Main Street, of course, is Wall Streetís closest place to heaven these days; Mr. and Mrs. American Consumer, in continuing to go where Mr. and Mrs. CEO fear to tread — namely, the marketplace — have kept the economyís pulse going since January and will likely have to keep it up for the rest of the year if weíre to avoid paying for the dot-com boom with a bona fide recession.

What weíve got is a manufacturing recession, a profits recession, an earnings recession and a capital-investment recession, and probably a few others. But thanks to the stolid materialism of the U.S. consumer, who accounts for two-thirds of U.S. economic activity, the U.S. on the whole can still call this thing a slowdown, or as Alan Greenspan likes to call it, "a period of sub-par growth." Both of which are much nicer terms — and both of which are likely be the terms du jour well into 2002. And thatís if the consumers keep bailing us out.

Which leaves Wall Street, essentially a big betting parlor for wagering on the future performance of corporations and industries, rather leery about placing any bets. The markets donít stand still, because professional traders have to do something all day, but a session like Mondayís low-volume, flat-indexes one is a sure indication that not only donít investors know for sure where things are headed over the next 3-6 months, they often have no "visibility" about the next 3-6 days, or even the next 3-6 hours. Without a direction, without what the Street types call "leadership," nobody, not even the small fry, makes a move.

By the Dow wound up notching 120 points. But donít get used to it. Wall Street has lately begun to crow about this being "the bottom," and they may have a point. After racking up its worst July in a long, long while, NASDAQ still hasnít budged since April and seems to have settled in around 2,000. The Dow may be doing the same thing somewhere in the 10,500 range. But bottoms donít change into bounces just because theyíre been at bottom for a few months — the whole decade of the '70s was a bottom, practically — and even if the Internet economy doesnít unwind even further (which is not impossible) it takes something to get things moving in the other direction.

That something may be a big companyís bullish Q4 outlook; it may be something as small like Ciscoís announcement Tuesday that it was finally whittling down its piles of unsold inventory. You never know how mass delusions get started. More likely itís going to have to be a general feeling that the economy (and the tech sector) has located the courage to start making new and exciting things again. Particularly the kinds of business-investment purchases that make higher productivity — more stuff at less cost — possible.

Until then, itís up to Main Street consumers to keep the economy above water. Which would be a much more attractive bet if it didnít mean that then they didnít have to keep spending — even more furiously, if possible — just to keep that demand carrot under corporate Americaís nose.

Itís enough to bring day trading back in style.