Stock investors ask: What’s the next big thing?
A year after the stock market began its comeback from 12-year lows, investors are looking for the next big thing.
Stocks have lost some of the momentum that propelled the Dow Jones industrial average up 61.4 percent from its close of 6,547 on March 9, 2009. That’s natural — bull markets tend to slow down as they head into their second year. But the lethargic pace of the economic recovery has also been a bit of a drag on stocks. And so investors are waiting for signs that the economy is ready to put up some solid, sustainable growth numbers.
The most likely trigger: job growth. Investors need to see a Labor Department report that says employers are creating more jobs than they’re cutting.
Until then, investors are going to stay cautious. Analysts say the market is likely to move sideways or drift higher, as it’s been doing over the past few weeks. Tuesday’s trading fit the pattern of modest moves. The Dow rose nearly 12 points. The average is up 1.3 percent so far this year.
But that doesn’t mean the market isn’t going to have its fitful moments. And it certainly has volatile industries that are expected to move the rest of the market. On Tuesday, the financial companies that led stocks higher in the past year again drove trading. Analysts said financial shares rallied as investors reacted to rumors that the government might prohibit the trades known as short sales in stocks of companies it owns. The government has large stakes in
The market began its ascent last March 10 after
At the time, such news, which amounted to glimmers of hope, were enough for investors. With stock prices so much higher now, they want proof.
“A lot of the gains we already enjoyed have been in anticipation of economic progress which has not yet occurred,” said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors.
Besides jobs, investors need to see more strength in the housing market. Traders have been tolerant of recent declines in home sales, but if those numbers don’t pick up, the market is likely to become uneasy.
First-quarter earnings reports that will be issued next month need to show continued sales growth. Companies’ results for the last three months of 2009 were better than expected. Now the market wants to know that demand, starting with consumers, is rising.
Even if the news improves, just holding the gains of the last year could be tough. Some of the market’s big gains in past years were followed by slumps. In the first year of the 1982-87 bull market, the Standard & Poor’s 500 index jumped 58 percent. In the second year, the index fell 14.4 percent.
That doesn’t mean that’s what will happen this time. In 2003,
According to preliminary calculations, the Dow on Tuesday rose 11.86, or 0.1 percent, to 10,564.38. The Dow remains 25 percent below its peak of 14,164.53, reached in October 2007.