Wall Street has stepped back from a spectacular six-month rally, leaving investors pondering the depth of the latest pullback in the context of a fragile economic recovery.
Some analysts say a “correction” would be healthy for the market by working off some of the gains and easing speculative fervor from short-term traders.
Still in doubt, however, is whether the bull market can keep running even after stunning gains of some 60 percent for the broad market as the economy struggles to emerge from recession.
Over the past week, the Dow Jones Industrial Average lost 1.58 percent to end Friday at 9,665.19, as the market pulled back from 11-month highs.
The tech-dominant NASDAQ slipped 1.97 percent to 2,090.92 while the Standard & Poor’s 500 broad-market index retreated 2.24 percent to 1,044.38.
The market appeared to hit a roadblock on Wednesday as stocks rallied in the wake of a Federal Reserve announcement that it intended to hold interest rates near zero for some time.
The rally pushed the Dow briefly above 9,900 but then a pullback began. Analysts said the market used the occasion to lock in hefty gains and wait for further evidence that the economy is pulling out of recession.
Al Goldman, chief market strategist at Wells Fargo Advisors, urged clients to wait out the correction.
“A several-day pullback has begun,” he said. “We believe it will be measured in days, not weeks, but it still must be respected after the 60 percent rally from the March 9 lows. The big picture is still a bull market which we believe will be higher by year-end.”
Bob Dickey at RBC Wealth Management said the market is in “an established bull trend” until proven otherwise.
“Today the market is likely telling us what the economic condition may be six to 12 months from now, and although it currently may not make sense, the market has tended to lead these economic changes historically,” he said.
Gregory Drahuschak at Janney Montgomery Scott said that “for the very short-term that the market is getting a bit tired” but that does not alter the long-term outlook.
“We are not concerned about a short-term pullback since we are focused more on GDP and earnings potential into the first half of 2010 — potential we do not think the market has discounted fully yet,” he said.
Also optimistic was John Praveen at Prudential International Investments, saying: “Equity markets are now facing the sweet spot in the economic cycle with a stronger and faster rebound from the recession, inflation close to a trough, but not yet picking up enough to cause concern, ample liquidity and interest rates remaining low.”
Others remained skeptical, including David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates.
Rosenberg said he saw “a bear market rally as opposed to the onset of a new secular bull market” and urged investors to stay cautious.
“I am always skeptical of rallies that are purely premised on technicals and liquidity but bereft of a solid economic foundation,” he said. “While green shoots did appear in the economic data, all the growth we have seen globally, and in the USA in particular, has come courtesy of unprecedented government stimulus. We see nothing organically in the economy to get us excited.”
Bonds firmed as investors shifted away from equities. The yield on the 10-year Treasury bond eased to 3.329 percent from 3.474 percent a week earlier while that on the 30-year bond dropped to 4.093 percent from 4.231 percent.
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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