The Markets This Week
IT'S SHAPING UP TO BE THE STOCK MARKET'S Maginot Line: For each of the 10 trading days so far in June, the Standard & Poor's 500 Index has closed within just 1% of 940 — a remarkable feat after two years of volatile swings.
It's easy to see why buyers and sellers have arrived at this impasse. Stocks have run up 40% in three months and are pricing in a heady economic rebound many don't yet see. Businesses and consumers are still paying off debts, and rising oil prices and mortgage rates threaten to thwart the budding revival. Yet there are unmistakable signs the global financial crisis has passed, and consumer confidence has been restored to the strongest level in nine months. Just last week, companies from Home Depot (ticker: HD) to Texas Instruments (TXN) raised their profit forecasts.
How this deadlock is broken could determine the market's next big move. A clear break above the battle line — roughly between 944 and 956 for the S&P 500 — will trigger short covering and draw in buyers watching from the sidelines, and that could lift the index up another 100 points toward 1050, says one Wall Street strategist.
But the rally will begin to stall as it pushes toward 1050. Any pullback likely won't be severe enough to violate the S&P 500's March low of 666.79, which this strategist considers "safe for many quarters to come." But he thinks the S&P 500 could fall back into the low 800s once the market realizes the government's fiscal and monetary measures are "quick fixes but not a cure" for the economy, like "putting a lot of band aids on a compound fracture"(source: Barrons Online).
It's easy to see why buyers and sellers have arrived at this impasse. Stocks have run up 40% in three months and are pricing in a heady economic rebound many don't yet see. Businesses and consumers are still paying off debts, and rising oil prices and mortgage rates threaten to thwart the budding revival. Yet there are unmistakable signs the global financial crisis has passed, and consumer confidence has been restored to the strongest level in nine months. Just last week, companies from Home Depot (ticker: HD) to Texas Instruments (TXN) raised their profit forecasts.
How this deadlock is broken could determine the market's next big move. A clear break above the battle line — roughly between 944 and 956 for the S&P 500 — will trigger short covering and draw in buyers watching from the sidelines, and that could lift the index up another 100 points toward 1050, says one Wall Street strategist.
But the rally will begin to stall as it pushes toward 1050. Any pullback likely won't be severe enough to violate the S&P 500's March low of 666.79, which this strategist considers "safe for many quarters to come." But he thinks the S&P 500 could fall back into the low 800s once the market realizes the government's fiscal and monetary measures are "quick fixes but not a cure" for the economy, like "putting a lot of band aids on a compound fracture"(source: Barrons Online).
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