Wall Street’s spectacular run has hit a speed bump, with investors pausing to digest gains and pondering how far the rally can go in an economy showing signs of recovery along with lingering weakness.
The main stock indexes pulled back from a four-week run that saw gains of around 15 percent for the broad market.
The Dow Jones Industrial Average of blue-chips fell 0.52 percent for the week to end at 9,321.40 after notching a fresh nine-month high earlier in the week.
The Standard & Poor’s 500 index shed 0.63 percent over the week to 1,004.09, while the tech-dominated NASDAQ retreated 0.74 percent to 1,985.52.
The broad market has rallied more than 45 percent from lows hit in early March amid expectations for recovery, but is still down around 35 percent from all-time highs in October 2007.
The most recent rally, however, has given way to consolidation, and doubts about the recovery have grown amid lackluster data on US retail sales and consumer confidence.
“The strong positive market momentum seen in mid-to-late July has dramatically slowed,” said Fred Dickson, chief market strategist at DA Davidson & Co.
“We are not looking for major catalysts to lift the market over the next two to three weeks. Historically late August and September is a difficult time for the stock market, especially during years where the market has made a substantial move as buyers traditionally wait for third-quarter guidance and earnings releases before making new major stock purchase commitments,” Dickson said.
Myles Zyblock, analyst at RBC Dominion Securities, said that the market was now being plagued by doubts after the strong runup.
“Absent a sustained economic recovery, equity market gains will prove difficult to keep and nearly impossible to build upon, in our view,” he said. “At some point down the road, we might indeed discover that the labor market failed to recover, that the economic upturn proved brief and that the equity market rally was merely a multimonth pop in a major downtrend.”
However, he said there were signs the economy was on the mend.
“Specifically, the leading economic indicators that have worked for decades remind us that the economic recovery is progressing,” he said. “In fact, some of these same indicators point to the possibility of a powerful surge in production activity starting as early as this quarter and extending out into the first half of 2010.”
Doug Sandler at Riverfront Investment Group said that despite the fear that rally has gone too far, it pays to look back to historical highs rather than the March lows, which he considers an anomaly.
“We should discount the extraordinary lows and excessively cheap valuations that were reached by the S&P 500 in March 2009,” Sandler said. “Ignoring the extreme valuations from March, we think that the market is currently neither cheap nor expensive.”
Linda Duessel at Federated Investors said she expected the economy to recover with help from the Federal Reserve’s commitment to easy money and other stimulative efforts.
At its meeting on Wednesday, she said, “The Fed made clear it’s in no rush to pull back.”
“This means money should remain cheap and growth could surprise to the upside in the second half,” she added. “So while commentators are suggesting a correction into the worst month of the year [September] — and this very well could happen — we would not want to lose sight of the continuing bullish story.”
Bonds gained on the shift away from stocks. The yield on the 10-year Treasury note dropped to 3.558 percent from 3.854 percent a week earlier and that on the 30-year bond declined to 4.406 percent from 4.603 percent. Bond yields and prices move in opposite directions.
In the coming week, the economic calendar is light with reports due on wholesale prices, and new and existing home sales. Earnings reports are due from tech giant Hewlett-Packard and home improvement retailer Home Depot.
The navy has installed 13 Phalanx Block 1B close-in weapons systems on its warships, increasing their defensive firepower, a defense official said on Saturday. The systems cost the navy NT$10.16 billion (US$314.67 million), while eight additional Block 1A systems are being upgraded in the US and are expected to be delivered next year, the official said, speaking on condition of anonymity. The Phalanx system used by Taiwan to defend its warships and key radar installations is a radar-cued gun system capable of firing 4,500 rounds a minute at targets as far away as 1.5km, the official said. With their superior range of
RACE FOR CHIPS: The Dresden site would help Europe reduce its reliance on Asia for semiconductors, while Germany aims to produce one-fifth of the world’s chips by 2030 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) yesterday broke ground in Dresden, Germany, on its first European plant as the continent seeks to safeguard its chip supplies amid growing US-China tensions. TSMC chief executive C.C. Wei (魏哲家) attended the event, together with European Commission President Ursula von der Leyen, German Chancellor Olaf Scholz, and the heads of Infineon Technologies AG, NXP Semiconductors NV and Robert Bosch GmbH, which each hold a 10 percent stake in the venture. TSMC owns a 70 percent stake in the plant. “Together with our partners, Bosch, Infineon and NXP, we are building our Dresden facility to meet the
RECOVERY: Overall, average income across all age groups increased, climbing to a record NT$709,000 last year, on the back of an improved economy, the DGBAS said Taiwanese workers under the age of 30 last year, on average, earned an annual income of NT$545,931 (US$17,044), a new high, as the economy continued to improve, data released by the Directorate-General of Budget, Accounting and Statistics (DGBAS) showed. That equated to monthly earnings of NT$45,494 per person, and marked an increase from NT$535,667 in 2022, the data showed. In addition to an improved economy, average incomes rose as the unemployment rate declined and the minimum wage rose, the statistics agency said. Overall, average income in Taiwan also hit a new record of NT$709,000 last year, up from NT$704,000 in 2022, the data
CARROT AND STICK: Palauan president said in 2020 the Chinese ambassador to a neighboring country pledged to flood his country with tourists if it switches alliance Beijing weaponized tourism to the Pacific archipelago of Palau over its allegiance to Taiwan and its accusations that China was behind a major cyberattack there, Palauan President Surangel Whipps Jr told The Associated Press (AP). Palau, along with Tuvalu and the Marshall Islands, is one of the three Pacific nations to recognize Taiwan as an independent democracy. Taipei’s allies in the Pacific have dwindled from six countries in 2019. Nauru abandoned its ties in January. Whipps told the AP in an interview late on Thursday that, in 2020, while he was running for his current post, the Chinese ambassador to a neighboring country