The word "glamorous" probably doesn't make it into too many sentences describing Illinois Tool Works.
The company's basic business is fasteners--nuts and bolts, we used to call them in the Midwest. Actually, there's a lot more to ITW than that, but everything it does is industrial in nature. Think welding equipment, power chucks and "coolant management solutions."
An Internet stock this isn't. Yet it might have been mistaken for one last week: ITW's share price leaped from $61.13 at the start of the week to $72.81 at Friday's close, a 19% gain on no apparent news.
ITW's stock rode a wave that swept across Wall Street and many foreign emerging markets last week. Suddenly, investors were hot for anything heavy-industry or commodity-based--the classic Rust Belt stocks.
That wave lifted the Dow Jones industrial average--which still includes a significant sampling of Rust Belt names--320 points, or 3.1%, for the week, to a record 10,493.89 by Friday's close.
Meanwhile, the Morgan Stanley "cyclical" stock index, made up exclusively of industrial names, rocketed a very Internet-like 11.8% for the week.
The underlying message in those moves was the subject of much debate all over Wall Street, but here's the prevailing view: The market is saying there's a very good chance the global economic crisis that began in Asia nearly two years ago is drawing to a close.
If you believe that, you might well also decide to boost your expectations for global growth this year. And that, in turn, might spur you to hunt for stocks in industries whose fortunes are closely tied to the world economy's swings.
Many companies, of course, would probably sell more stuff if global growth picked up. But the knee-jerk reaction amid this kind of mood swing about the economy is to buy the producers of commodities (where prices have been extremely depressed by weak demand) and the makers of big-ticket industrial goods, for which orders are often deferred when times are tough.
So copper-mining titan Phelps Dodge, whose shares have plunged from $90 in the summer of 1997 to less than $50 recently, soared 21% last week to $60.69. Ingersoll-Rand, a venerable manufacturer of industrial air compressors (for jackhammers, for example) jumped 22% for the week to $64.50--a record high.
And where did the money come from to buy these frequently ignored stocks? From the blue-chip market leaders of the last six months (and, in some cases, the last four years): Big investors dumped names like Wal-Mart, which fell from $104.88 on Monday to $95 by Friday, and IBM, down from $183.44 to $170.38 in the same period, and shoveled the proceeds into the Rust Belt issues.
The Internet darlings also had a tough week, relatively speaking. The Interactive Week index of 50 Net-related stocks slid 10% from its Monday record high to Friday's close.
Trade your Yahoo for Illinois Tool Works? Most Net investors no doubt would either be amused or horrified by the thought--even though young Yahoo might learn a bit about good corporate management from ITW, which succeeded in boosting earnings 37% between 1996 and 1998 (to $673 million last year) even though sales, at $5.6 billion last year, were up a modest 13% in those two years.
(Glenview, Ill.-based ITW, by the way, has beaten the Standard & Poor's 500 index in the 1990s, with a price gain of 452% from the fourth quarter of 1989 through this year's first quarter. The S&P's price gain: 264%. ITW's businesses may not be glamorous, but they have been quite lucrative.)
Even if many Net players aren't about to part with their dot.com stocks, the sentiment on Wall Street last week was that new money ought to be considering more than just those stratospherically valued shares.
Indeed, as market strategist and longtime bull Abby J. Cohen of Goldman Sachs put it in a note to clients Friday, "It's not just the cyclicals" that have revived lately:
* Beaten-down small and mid-sized stocks sparked to life last week. The S&P index of 600 smaller shares jumped 4.1% for the week, versus the blue-chip S&P 500's 2.2% decline and a 4.2% tumble in the technology-heavy Nasdaq composite.
We're still talking about a very depressed group in the smaller stocks: The S&P 600 still has a 5.7% loss year-to-date.
* Many foreign markets--especially in Asia--added last week to rallies that have been going on since late February.
South Korea's main stock index leaped 5.2% for the week to the highest since mid-1997. The Mexican market zoomed 6.8% for the week to a record high on Friday.
(If you own an emerging-markets stock fund, you should be beaming. The Vanguard Emerging Market Index fund, for instance, is now up 22.6% year-to-date.)
* In the bond market, heavy buying of high-yield corporate junk bonds has pushed the yield on the KDP high-yield bond index down to 9.24% from 9.57% as recently as March 22. It's now the lowest since early August.
All of this action appears rooted in the same idea: that the world economy is going to get better, not worse, in the near future.
