Wall Street sentiment muted


NEW YORK: The US stock market is nearing the end of its best year since the dawn of the new millennium, but almost nobody is partying like it’s 1999. 

Stock prices are at their highest in nearly two years, and many market strategists anticipate more gains in the year ahead. But there’s little of the bullish sentiment that often goes with such upturns, and many pundits are expressing guarded views about what might happen next. 

“The big firms are talking about the market hitting a peak some time in 2004. There are still fairly low expectations for how far this bull market can go,” said Ned Riley, chief investment strategist at State Street Global Advisors. 

Few strategists were forecasting a long-term, or “secular”, bull market after the big gains of the past year, Riley noted, although he himself believed there was a good chance that the market was set for a prolonged upturn. The prevailing view is that the market is in a more typical “cyclical” rally, the kind that lasts one to two years. 

Wall Street’s weak reaction to the capture of Saddam Hussein gave fresh evidence that investors were less than ecstatic, said Philip Roth, technical market analyst at Miller Tabac LLC. 

Saddam’s capture sparked forecasts of a major rally, and the Dow Jones Industrial Average jumped almost 100 points the morning after. But by the end of the day the market closed lower. 

“The technical position of the market determines how it reacts to news like this,” said Roth. “If the market is overbought, good news is ignored.” 

His view is that the market failed to carry through on the post-Saddam capture rally because it was already over-extended. 

The market quickly shifted its focus from Baghdad to the home front and economic fundamentals, said Peter Cardillo, chief strategist and director of research at Global Partners Securities. 

“The good news, the economic growth, it’s already priced in. The market needs another catalyst to move higher,” said Cardillo. “What the market wants to see now is what all this economic expansion means for corporate America.” 

The booming economy and accompanying corporate profits lifted stocks to the big advances of the past year. The Dow has risen more than 23%, the S&P 500 over 24%, and the Nasdaq composite more than 46%. 

That had left stocks at pricey levels of about 27 times earnings for the S&P index, said Paul Cherney, a market analyst at S&P Marketscope. “If you go back in history, we have never had a secular bull market start at such a high price-to-earnings level,” he added. 

The stock market, meanwhile, continues to labour under the fear of terrorist attacks like the ones on Sept 11, 2001, and instability in Iraq. Nonetheless, most analysts see stocks gaining ground. State Street Global Advisors' Riley sees “a very sustainable rise in corporate profits” because companies have cut costs so sharply that there will be “a lot of leverage in earnings”. 

But since stock prices have already risen so much in the past year, it will take a lot of earnings gains to justify a higher move. – Reuters  

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