It's not too late to invest in funds (page 1 of 2)

US Stocks

Last Saturday, congress gave final approval to a sweeping $1.35 trillion tax cut package. The compromise package would give households a refund of up to $600 this year and reduce most income tax rates across the board by 3 percentage points starting July 1, 2001. The cuts will range from 8% to 11% of the current tax rates, with the full benefits coming in 2006.

The victory did not come without a hefty cost; the president lost control of the Senate when Republican James Jeffords declared his independence and effectively handed control of the Senate to the Democrats. With the Senate controlling the traffic of the legislation, the administration will encounter more formidable obstacles down the road.

After the last cut by the Fed on May 15, 2001, which was well anticipated by the investors, the surprise is that the strength in the tech stocks, particularly, the Internet stocks, as of May-15-01:

S&P500 +2.28%
DJIA +1.22%
Nasdaq + 7.9%

Although we are quite convinced that we have seen the bottom, we did not anticipate a move into equities until the end of the year when earnings start to recover. Investors might have become comfortable in buying for a recovery at this level, but the very strength in the more speculative counters like Internet stocks makes this rally susceptible.
This unfounded optimism is based on companies CEO's claims that their businesses are about to turn around, but remember, these are the very same CEOs that watched helplessly when their companies' earnings fell off the cliff earlier this year. As the economy continues to slow, we expect to get an opportunity to buy again at lower levels, i.e. 1150 - 1200 range for the S&P500.

Meanwhile, in the capital goods, GE (GE $50) is getting to a buy area of $47.00, and JP Morgan (JPM $49) is a buy at current levels in the financial sector. RJ Reynolds (RJR $58.10) will once again prove its merit of negative correlation (low beta) in an uncertain market.

US Technology Stocks

On a week-on-week basis, the NASDAQ Composite Index traded stronger (+2.4%) to close up at 2251. In terms of price and sentiment, the focus for the week ahead will be on whether the positive price movement will be sustainable or if prices retreat back to their April lows.

Investor confidence has no doubt improved over the week (as represented by the recent price appreciation) as expectations gradually turned positive for technology companies to potentially turn-around earnings performance in 2H01. However, with the lack of fundamental confirmation, we believe investors are simply betting that the latter half of the year will provide a better business environment (especially after 5 interest rate cuts) and enhanced earnings profitability for technology companies. On the other hand, we believe that unless business leaders follow suit in confidence and open up corporate purse strings again to continue spending on the technology infrastructure build-out, technology companies' earnings growth will remain muted and rising stock prices will then collapse once more. As such, we remain cautious on technology issues and would subscribe to an accumulation strategy on price weakness and only on selected stocks within preferred technology segments. In terms of technology product investment allocations, we prefer the software (60%) over hardware (40%) issues in the near-term. And, within the software regime, we would focus on eBusiness Applications/Enablers, eBusiness Infrastructure and Wireless Communications themes.