The Markets This Week
STOCKS GOT OFF TO A STRONG START IN June after their best three-month run since 1938. But the momentum stalled Friday after the government reported 345,000 jobs were cut in May. That toll was the smallest since September, and so far below the 520,000 expected that many traders assumed the Labor Department had botched the numbers. But with the unemployment rate pushing 9.4% and stocks up 39% since March 9, cautious investors moved to take profits first.
Even after struggling Friday, the Dow Jones Industrial Average ended the week up 263, or 3.1%, to 8763. The Nasdaq Composite Index rallied 75, or 4.2%, to 1849, while the Russell 2000 Index added 29, or 5.7%, to 530. It has risen 55% since March 9.
With last week's rally, the S&P 500 has quickly arrived at Goldman Sachs' year-end target of 940 — full seven months ahead of schedule. Still, the firm's strategist thinks risks are "skewed to the upside" and he continues to recommend energy, materials, industrial and technology stocks, as well as exposure to the "BRIC" economies of Brazil, Russia, India and China.
Others are playing it safer. One Wall Street strategist thinks the S&P 500 could well finish the year near 1,075. But with the Street turning more bullish, he is taking profits in stocks that have run up substantially. "No one is going to be very happy with the pace of recovery, and that can cause some anxiety," he says. The perceived threat that the U.S. could lose its triple-A credit rating also may hurt stocks.
So here's what passes for consensus as the summer begins: Most investors believe stocks bottomed in March, and are looking for the recession to end later this year. Yet many seem under-invested in the current rally and are eager for a pullback. Economic data continue to point to a palpable, though hardly steadfast recovery: Sales of existing homes rose from decimated levels, and new manufacturing orders reached a level consistent with economic growth of roughly 2% (source: Barrons Online).
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