Nov. 4, 2002 — U.S. stock funds enjoyed a nice party last month, but the $64,000 question is: Will the good times last?
Hopes for a sustained rally have been dashed before — most recently last August — so fund managers generally appear to be cautious about the future.
“My gut instinct is we are pretty close to a bottom, and in the future, people will say 2002 was a good time to put money into the market,” said Bill D’Alonzo, manager of Brandywine Blue Fund (BLUEX). While upbeat, D’Alonzo cautions: “I don’t see the market soaring. If we see growth in the market, it will be fairly steady.” Brandywine Blue, which rose 4.8% in October, was the second-best-performing mid-cap growth fund so far this year.
The market has bottomed, agrees Stacey Thomas, co-manager of USAA Small Cap Stock Fund (USCAX), but believes it will probably be in a trading range until corporate profits improve. The economy is a potential road block, according to Thomas. She notes that some recent economic statistics have been mixed, such as jobless claims. USAA Small Cap Stock, up 0.1% in October, was the fifth-best-performing small-cap growth fund so far this year.
Earnings growth is likely, but at just regular rates, said Kathy O’Connor, co-manager of Eclipse Small Cap Value Fund (EEQFX). A positive sign, in O’Connor’s view, is that valuations are getting close to their traditional mean, though she doesn’t believe that stock prices have bottomed. Down 1.1% in October, Eclipse Small Cap Value was the 11th-best-performing small-cap value fund so far this year.
Stock declines have been so broad-based this year that there are attractive investments in most sectors, said Scott Moore, co-manager of American Century Equity Income/Inv (TWEIX). “Today, there are roughly equal opportunities across all capitalization spaces,” Moore added. The sixth-best-performing mid-cap value fund this year, American Century Equity Income rose 5.3% in October.
Growth and value were “neck and neck” for the last several months, although they generally suffered declines, said Sam Stovall, chief investment strategist for Standard & Poor’s. In October, growth stocks beat value stocks, he noted, largely because the growth category had been hit hardest over the last several years.
Stovall also pointed out that the October rebound favored large-cap issues. This category benefited from last month’s rebound in tech and telecom stocks, which he said are generally large-cap names. Based on October’s rally, Stovall said he is “cautiously optimistic about the market, although we’re not heading back to the races.”