Stock prices eased last week, snapping a five-week winning streak for most of the major indexes. Most of the damage came Friday as traders took profits on news late Thursday of a huge foreclosure-abuse settlement between five big banks and attorneys general from the federal and state governments.
It wasn’t a great week, but investors still appear to be gaining confidence in a more “normal-acting” market, or one at least where not all stocks rise and fall together, last year’s bugaboo. Trading activity remains unspectacular.
The Dow Jones Industrial Average dropped 61 points, or 0.5% on the week, to close at 12,801.23. The Nasdaq Composite finished the best of the three main indexes, losing 0.1% last week, to close at 2903.88.
The market is moving from “macro to micro,” says Brian Belski, the bullish chief investment strategist at Oppenheimer. A precipitous drop in stock price correlations this year suggests a market in which shares move more on company fundamentals than on global macroeconomic news, he avers. After last year’s persistently high correlations, over 0.9 at times, a reversion to the mean will assure that low correlations will continue, he predicts.
Continued good earnings reports and U.S. macroeconomic data are helping keep the market buoyant, adds Peter Kenny, director of institutional sales at Knight Capital Americas. Leadership by the large-cap tech and financial stocks—instead of the small caps, as was the case in 2009-2010—gives “legitimate support” and confidence to the market’s positive tone, he adds.
Granted, we are only six weeks into the market’s about-face, but the bears have to pay some attention to this change in market tone.
Sentiment can be fickle, but last year’s worries—the European financial crisis and the U.S. economy—no longer appear to be scary enough to usher in more than a routine pullback in the short term. The Greek boogeyman isn’t going away, but the market doesn’t seem so easily spooked. It’s up to the bears to prove it otherwise.
Increased selling by insiders and abnormally bullish readings from the American Association of Individual Investors’ weekly survey argue for a short-term pullback soon. Potentially worrisome weekend headlines out of Europe—by now customary—could weigh on markets next week (Source: Barrons Online).