Stock market rebound shows its age at 1-year mark
A year after the stock market hit bottom and began a spectacular comeback, it’s getting harder to dazzle investors.
Monday was a perfect example of what the market is all about. The Dow Jones industrial average fell 14 and the other major indexes were narrowly mixed as stocks stalled after a big rally on Friday.
There was upbeat news, the kind that often sends stock higher: Insurer American International Group Inc. reached a deal to sell one of its major foreign divisions to
But investors who rocketed the Dow up 61.2 percent from the 12-year low of 6,547.05 it hit last March 9 weren’t impressed enough to extend the previous day’s big advance.
That kind of caution is the reason why the Dow is up just 1.2 percent in 2010. It has stumbled through the first two months of the year because the news just hasn’t been good enough to keep the momentum going.
“We still have the opportunity for further gains but expectations have improved,” said Stu Schweitzer, global markets strategist at J.P. Morgan’s Private Bank in New York. “So we have to exceed higher expectations now for the market to keep going.”
A year ago, investors were buying on the first glints of an improving economy. It started with the news on March 10 that
During the course of the next year:
— The Standard & Poor’s 500 index has gained 68.3 percent from its 12-year low of 676.53. The total return, which includes dividends, is 72 percent.
— The technology-dominated
— Financial company stocks devastated by the credit crisis and recession have led the market higher.
The climb has been fairly steady but it has also shown signs of stopping when it looked like the economy might founder. In June, it was concern about corporate profits and the pace of the market’s climb. And last month, it was fears that debt problems in Greece and other European countries could cripple the global recovery.
Investors are looking for reassurance that the economy is strong enough to justify the past year’s rally. There are important signs that the economy is strengthening but there are also plenty of lingering problems.
The number of job losses has gone from around 700,000 per month a year ago to 36,000 in February. Unemployment rate is down but it is still higher than it was a year ago.
History shows that the market often heals before the job market does. In downturns in the past 60 years,
But without some concrete signs that the job market is recovering and that consumers in turn are spending more, investors are likely to stay cautious. Friday’s rally was triggered by the government’s February jobs report. The 36,000 jobs lost last month were less than expected. Now, investors want to see jobs being created.
There may be another impediment that’s holding the market back: Many traders think stocks aren’t worth more than what they cost now. Most of the bargain stocks have gone up enough, they say. Bank of America Corp. has gone from $3.75 a share to $16.74.
Investors are also concerned about one of the great unknowns: How will the economy do when the government pulls back on the economic stimulus measures it began putting in place as the financial system was crumbling in late 2008.
Derwood S. Chase Jr., chief executive of the Chase Investment Council in Charlottesville, Va., contends that government programs like the Cash for Clunkers to entice car buyers make it difficult to tell whether the economy can stand on its own.
“We certainly are pretty skeptical of how sustainable some of the progress is,” he said. “The market is at kind of serious tipping point in our view. It’s been mostly moving sideways.”
The market might stay flat, at least for a while. There are still plenty of economic reports ahead, but not of the caliber of the jobs numbers. And investors are no longer automatically selling heavily when stats like home sales or consumer confidence are disappointing. There are also few corporate profit reports to move stocks.
But with little to go on, there is a risk that traders will again become nervous that stocks have risen too fast. Some have a “when in doubt, get out,” mentality.
Schweitzer said he still has plenty of concerns but fewer than he did.
“My job is to worry,” he said, adding: “It’s less scary than it was a year ago.”