By Kate Gibson
As stocks climbed toward their first two-week stretch of gains
in nearly 11 months, equity analysts said the recent run higher
bodes well for the remainder of March, though the dicey economic
climate still weighs heavily on the market.
"The latest relief rally was sparked by lots of good news for a
refreshing change, which I believe may have some staying power,"
said Ed Yardeni, president and chief investment strategist, Yardeni
Research Inc.
Up 0.7% for the week, the Dow Jones Industrial Average on Friday
fell 122.42 points, or 1.7%, to 7,278.38, leaving the blue-chip
index up 0.7% for the week, and giving it its first consecutive
weekly gains since the period ending May 2, 2008, when it rose
three weeks straight.
"The fundamentals are challenging; earnings and uncertainty. The
market was vastly oversold a few weeks ago, so we weren't surprised
by a relief rally -- our sense is use rallies as a way of
implementing short positions at higher prices," said Dean Curnutt,
president of Macro Risk Advisors.
Utilities, consumer staples and health care led sector gains
Friday, while financials, energy and industrial shares fronted the
losses on the S&P 500 Index , which fell 15.5 points, or 2%, to
land at 768.54, up 1.5% from the week-ago close. The
technology-laden Nasdaq Composite (RIXF) shed 26.21 points, or
1.8%, to 1,457.27, leaving it up 1.8% from last Friday's close.
"We believe the current rally has some limited room to run into
the end of the quarter, as money managers who have been underweight
equities look to lock in their outperformance," said Nicolas Colas,
chief market strategist, BNY ConvergEx.
A portion of this week's likely gains came on Wednesday, when
stocks restarted the prior session's rally after the Federal
Reserve's surprising announcement that it would buy $300 billion in
longer-term Treasurys to help the ailing economy.
"We think the Fed has put a floor under financial system
confidence and therefore stock prices. If a trillion dollars of
stimulus cannot buy the economy some meaningful relief, we have
much, much bigger problems. If that is the case, we will know in
the second quarter," said Colas.
Less optimistic on a continued run higher in the immediate
future, Nick Kalvas, equity analyst at MF Global Research, said the
market tends to trade lower post March expiration. Plus, "credit
remains a negative despite the Fed's action," said Kalvas.
Earnings, Geithner on Tap
Conversely, "the market may not want to be too short with
Treasury Secretary Geithner ripe to supply a plan to heal the
financial sector," said Kalvas of expectations the Treasury
secretary would outline help for the financial system on
Thursday.
"Many are looking for a strong plan to address toxic assets to
be announced with leaks in the days before the speech," said
Kalvas.
Colas expressed concern that the earnings season would not bring
"any real information about the post-liquidity bubble earnings
power of the U.S. economy," calling it the central issue for
equities. "The market is only truly cheap if corporate earnings can
show modest improvement through 2009," he said of hopes that stock
prices have largely bottomed out.
"The stock market is still dealing with the uncertainty
question. This uncertainty centers on the longer-term health of the
economy and the outlook for corporate earnings," said Robert
Pavlik, chief market strategist, Banyan Partners LLC.
Next week brings earnings from upscale jewelry Tiffany & Co.
(TIF) and drugstore chain Walgreen Co. (WAG) on Monday, followed by
Commercial Metals Co. , Carnival Corp. (CCL) and Jabil Circuit Inc.
(JBL) on Tuesday.
"While the uncertainty has kept many investors on the sideline
throughout this recent two week rally we have maintained our
cautious optimism that stocks will recover during the second half
of this year or early into 2010," said Pavlik.