The Markets This Week
STOCKS RALLIED A THIRD STRAIGHT WEEK, their best streak in seven months, and ran up more than 23% in just 13 days.
The better news: Investors are deeply skeptical.
The bounce of more than 20% off the 12½-year low reached on March 9 meets Wall Street's technical (if widely scorned) definition of a new bull market.
So why did it bring more skepticism than celebration? Many traders see short-covering as the culprit, as heavily-shorted stocks racked up the biggest gains. Financial stocks left for dead have bounced the hardest, and are up 26% this month. Chatter at happy hour, now just called cocktail hour, attributes the buying to "reverse window dressing," where money managers reluctant to hoard cash during that rare winning month begin buying the high-fliers.
Such qualms are warranted, as U.S. households lost $11.2 trillion last year, and a lengthening rally in a still-weakening economy also increases odds of a pullback such as Friday's. But lingering mistrust also suggests there are ample cash reserves that could drive stocks higher, should more investors become convinced the rally is for real.
Whether that conviction blooms or wilts will depend on a handful of looming catalysts. Come April 7, Alcoa (ticker: AA) leads the parade of U.S. companies reporting first-quarter earnings. As '09 began, analysts were girding for a 12% decline in first-quarter profits. But now they're bracing for a 35.5% plunge (or a 19.8% slide after stripping out financials), says Thomson Reuters. Can companies clear this lowered bar?
The coming weeks also conclude government "stress test" of banks. Last week, the government outlined a plan to entice private investors to buy problem loans and securities, which Treasury Secretary Timothy Geithner calls "legacy assets," as though they're family heirlooms. Already, the betting is intensifying on survivors and failures. Goldman Sachs' bank analysts, for example, have identified eight firms they think can swiftly repay bailout money over the next year: Morgan Stanley (MS), Comerica (CMA), US Bancorp (US
, JPMorgan (JPM), Bank of New York Mellon (BK), First Horizon National (FHN), Northern Trust (NTRS), and City National (CYN).
Consumer spending ticked up for a second straight month in February, even as incomes fell and layoffs mounted. Best Buy (BBY) also improved the mood, after its sales-drop narrowed to 2.5% early this year, from 6.8% in December. As the government program to spur consumer lending kicks in, traders will scour data to see if clinging to skepticism will be rewarded.The Dow Jones Industrial Average ended the week up 498, or 6.8%, to 7776. Nasdaq Composite Index jumped 88, or 6%, to 1545 and could see its best month since October 2002, while the Russell 2000 added 29, or 7.2%, to 429. (source: Barrons Online).
The better news: Investors are deeply skeptical.
The bounce of more than 20% off the 12½-year low reached on March 9 meets Wall Street's technical (if widely scorned) definition of a new bull market.
So why did it bring more skepticism than celebration? Many traders see short-covering as the culprit, as heavily-shorted stocks racked up the biggest gains. Financial stocks left for dead have bounced the hardest, and are up 26% this month. Chatter at happy hour, now just called cocktail hour, attributes the buying to "reverse window dressing," where money managers reluctant to hoard cash during that rare winning month begin buying the high-fliers.
Such qualms are warranted, as U.S. households lost $11.2 trillion last year, and a lengthening rally in a still-weakening economy also increases odds of a pullback such as Friday's. But lingering mistrust also suggests there are ample cash reserves that could drive stocks higher, should more investors become convinced the rally is for real.
Whether that conviction blooms or wilts will depend on a handful of looming catalysts. Come April 7, Alcoa (ticker: AA) leads the parade of U.S. companies reporting first-quarter earnings. As '09 began, analysts were girding for a 12% decline in first-quarter profits. But now they're bracing for a 35.5% plunge (or a 19.8% slide after stripping out financials), says Thomson Reuters. Can companies clear this lowered bar?
The coming weeks also conclude government "stress test" of banks. Last week, the government outlined a plan to entice private investors to buy problem loans and securities, which Treasury Secretary Timothy Geithner calls "legacy assets," as though they're family heirlooms. Already, the betting is intensifying on survivors and failures. Goldman Sachs' bank analysts, for example, have identified eight firms they think can swiftly repay bailout money over the next year: Morgan Stanley (MS), Comerica (CMA), US Bancorp (US
, JPMorgan (JPM), Bank of New York Mellon (BK), First Horizon National (FHN), Northern Trust (NTRS), and City National (CYN).Consumer spending ticked up for a second straight month in February, even as incomes fell and layoffs mounted. Best Buy (BBY) also improved the mood, after its sales-drop narrowed to 2.5% early this year, from 6.8% in December. As the government program to spur consumer lending kicks in, traders will scour data to see if clinging to skepticism will be rewarded.The Dow Jones Industrial Average ended the week up 498, or 6.8%, to 7776. Nasdaq Composite Index jumped 88, or 6%, to 1545 and could see its best month since October 2002, while the Russell 2000 added 29, or 7.2%, to 429. (source: Barrons Online).
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