As caution creeps back into Wall Street, investors have pulled back to consolidate recent hefty gains amid questions about whether stocks have hit their peak for this year.
Losses in the past week came after a historic rally of some 50 percent for the broad market, but also amid jitters about the “September effect,” reflecting a historical trend of a weak period and last year’s market calamity in September.
Going into the US Labor Day holiday weekend, the blue-chip Dow Jones Industrial Average fell 1.18 percent for the week to end at 9.441.27.
The technology-heavy NASDAQ composite dipped 0.49 percent to 2,018.78 and the broad-market Standard & Poor’s 500 index pulled back 1.22 percent to 1,016.40.
With the broad market still up around 50 percent from lows in early March, some analysts argue that stocks have risen too far too fast over the past six months.
David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, said the market appears to be entering a new phase, having shifted its view from a contracting economy to one that is growing again.
“For months, the equity market had this uncanny ability to rally on any good news, as the psychology took hold that less-negative data was a positive,” Rosenberg said.
“But having gone from pricing in a drop of 2.5 percent in real GDP at the lows to a rise of 4.0 percent now, it looks like Mr Market is becoming a little more discerning in terms of interpreting the economic data,” he said.
Doug Kass at Seabreeze Partners recently argued that stocks had hit their highs for the year in late August, saying that the bull market was “in complacency,” as “optimism and a boisterous enthusiasm reigns.”
But others contend that the market, which remains more than 30 percent below peaks of 2007, can resume its upward track after a pause to consolidate.
Fred Dickson, chief market strategist at DA Davidson & Co, said he expects the S&P index to gain another 5 percent this year amid an improving economy.
“Over the next three months we are looking for the stock market to experience a series of minor rallies followed by short, shallow dips as investors continue to look for even slight pullbacks to raise equity exposure,” he said.
The market struggled to interpret the past week’s biggest economic news, showing a loss of 216,000 jobs as the US unemployment rate hit a fresh 26-year high of 9.7 percent.
While this was better than expected and showed some healing in the economy, it failed to inspire confidence in a strong economic rebound.
“All indications are that US real GDP growth will turn positive again during the third quarter of this year, but the recession lives on in the labor market,” Meny Grauman at CIBC World Markets said.
Brian Wesbury at First Trust Portfolios said the data suggests the economy is quickly gaining momentum after a brutal recession.
Dean Maki at Barclays Capital also sees an economy that will surprise to the upside.
“The economic data continue to reinforce our forecast of a solid recovery, pointing to robust growth in manufacturing output, housing, and real exports, and we expect these forces to propel a substantial rebound in growth over the next year,” he said.
Bonds were mixed for the week. The yield on the 10-year Treasury bonds fell to 3.442 percent Friday from 3.451 percent a week earlier and that on the 30-year bond rose to 4.273 percent from 4.208 percent. Bond yields and prices move in opposite directions.
The economic calendar is light in the holiday-shortened week opening on Tuesday. The market will receive the Federal Reserve Beige Book survey on the US economy and data on the US trade balance.
Super Typhoon Kong-rey is the largest cyclone to impact Taiwan in 27 years, the Central Weather Administration (CWA) said today. Kong-rey’s radius of maximum wind (RMW) — the distance between the center of a cyclone and its band of strongest winds — has expanded to 320km, CWA forecaster Chang Chun-yao (張竣堯) said. The last time a typhoon of comparable strength with an RMW larger than 300km made landfall in Taiwan was Typhoon Herb in 1996, he said. Herb made landfall between Keelung and Suao (蘇澳) in Yilan County with an RMW of 350km, Chang said. The weather station in Alishan (阿里山) recorded 1.09m of
NO WORK, CLASS: President William Lai urged people in the eastern, southern and northern parts of the country to be on alert, with Typhoon Kong-rey approaching Typhoon Kong-rey is expected to make landfall on Taiwan’s east coast today, with work and classes canceled nationwide. Packing gusts of nearly 300kph, the storm yesterday intensified into a typhoon and was expected to gain even more strength before hitting Taitung County, the US Navy’s Joint Typhoon Warning Center said. The storm is forecast to cross Taiwan’s south, enter the Taiwan Strait and head toward China, the Central Weather Administration (CWA) said. The CWA labeled the storm a “strong typhoon,” the most powerful on its scale. Up to 1.2m of rainfall was expected in mountainous areas of eastern Taiwan and destructive winds are likely
The Central Weather Administration (CWA) yesterday at 5:30pm issued a sea warning for Typhoon Kong-rey as the storm drew closer to the east coast. As of 8pm yesterday, the storm was 670km southeast of Oluanpi (鵝鑾鼻) and traveling northwest at 12kph to 16kph. It was packing maximum sustained winds of 162kph and gusts of up to 198kph, the CWA said. A land warning might be issued this morning for the storm, which is expected to have the strongest impact on Taiwan from tonight to early Friday morning, the agency said. Orchid Island (Lanyu, 蘭嶼) and Green Island (綠島) canceled classes and work
KONG-REY: A woman was killed in a vehicle hit by a tree, while 205 people were injured as the storm moved across the nation and entered the Taiwan Strait Typhoon Kong-rey slammed into Taiwan yesterday as one of the biggest storms to hit the nation in decades, whipping up 10m waves, triggering floods and claiming at least one life. Kong-rey made landfall in Taitung County’s Chenggong Township (成功) at 1:40pm, the Central Weather Administration (CWA) said. The typhoon — the first in Taiwan’s history to make landfall after mid-October — was moving north-northwest at 21kph when it hit land, CWA data showed. The fast-moving storm was packing maximum sustained winds of 184kph, with gusts of up to 227kph, CWA data showed. It was the same strength as Typhoon Gaemi, which was the most
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