The Markets This Week
HERE'S WHAT PASSES FOR CONSENSUS AS the stock market rises for a remarkable sixth straight week: Stocks are overdue for a pullback. But because the economy shows signs of improving, a pullback could be — all together now — a buying opportunity.
Such concord explains why a rally that has lifted stocks 29% since March 9 is so persistent, and yet so unpopular. The Dow industrials haven't declined for more than two consecutive days in nearly seven weeks, and each shorter and shallower dip has met only more dogged buying. Yet the returns of many money managers, especially hedge funds, have trailed the runaway stock indexes since March, and that anxious and frustrated swell of liquidity is driving the bidding.
As redemptions slow, traders sitting on vast undeployed cash stashes also face mounting pressure to hug the benchmarks. "Many investors are under-invested as risk-free has become the new norm," notes one Wall Street strategist. And "because many managers underperformed in 2008, we believe there is significant anxiety."
How much has the mood brightened? A mid-April survey of global fund managers by a market strategist shows a crowd of "reluctant, not euphoric, bulls" now that apocalypse has been averted. While cash holdings are still high, more managers now think the worst is over and that defensive positions should be trimmed. The percentage expecting a strengthening global economy over the next 12 months is at its rosiest since 2004, while those overweight cash shrank to the lowest level since late 2007.
Economic data didn't exactly endorse these happier notions, but it also did little to dispel them last week.
Home construction fell 11% in March after February's 17% spurt, but a builder survey showed the most optimism since 2003. Retail sales pulled back in March, but consumer confidence ticked higher with Americans momentarily flush from tax refunds, cheap gas and recent refinancings. A bankruptcy filing by mall operator General Growth Properties (ticker: GGP.BE) leaves an unsettling trail of creditors, but Rosetta Stone (RST) became the first stock debut in nearly a year to vault above its offering range (source: Barrons Online).
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