Photo Credit: Reuters/Brendan McDermid
STOCKS SUFFERED THEIR worst loss in three months even as new evidence makes overwhelmingly clear that the U.S. economy is healing and the worst recession in generations is well over.
It isn’t just that the economy grew 3.2% from January to March, and has expanded for three straight quarters, or that consumer spending jumped 3.6% and employers are hiring again. Companies as varied as Caterpillar (ticker: CAT), DuPont (DD), Whirlpool (WHR), UPS (UPS) and Visa (V) all told investors to expect stronger profits, and even Health Management Associates (HMA) said things are looking up for the ailing hospital industry.
The failure of good news to goad stocks to fresh highs marks a rare departure for a market that has rallied relentlessly for 12 of the last 14 months. There are even welcome signs, quite scarce lately, that our appetite for risk hasn’t become bottomless. Chip stocks fell last week, copper prices pulled back 5%, and a federal criminal probe of Goldman Sachs’ (GS) trading practices beat back bank and brokerage stocks. For the first time in a long time, selling accelerated during Friday’s final hour — a sign traders were paring their risk heading into a busy weekend featuring a horse race in Kentucky, a congregation of Warren Buffett fetishists in Omaha, and a [euro ]45 billion plan to contain Greece’s fiscal mess.
How stocks react this week to the anticipated bailout of Greece will offer a glimpse of the market’s mood. Bulls can take heart in the knowledge that selling hasn’t spurred more selling of late, and stocks haven’t fallen hard for two straight sessions in a while.
The nervous flight from Europe also steered investors toward U.S. debt, pushing the yield on benchmark 10-year treasuries below 3.7% and alleviating, momentarily, recent fears about rising interest rates.
The Dow Jones Industrial Average ended the week down 196 to 11009, and the 1.8% loss was its worst since late January. The Nasdaq Composite Index snapped an eight-week winning streak and closed down 69, or 2.7%, to 2461, while the Russell 2000 skidded 25, or 3.4%, to 717.
Despite the weak finish, stocks ended April with broad gains totaling 1.4% for the Dow, 1.5% for the S&P 500, 2.6% for the NASDAQ and 5.6% for the Russell. But dry powder in money-market mutual funds shrank to $2.87 trillion from nearly $4 trillion in early 2009, just before this bull run began.
In the coming weeks, buyers’ resolve might be tested by lingering unemployment and a wobbly real-estate market propped up by government incentives and artificially low mortgage rates. Last week, the Federal Reserve upgraded its assessment of economic prospects but promised to hold borrowing costs down for — all together now — “an extended period.” And as long as savers are rewarded with near-zero interest rates and risk takers protected by bailouts, all the money in the markets will need some place to go, and stocks will remain as good a bet as any (Source: Barrons Online).