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US investors cast aside worries and plunge in

"Our biggest fear at this point is that the lunatic fringe is again engaging in behavior eerily reminiscent of the bubble."

Steve Galbraith at Morgan Stanley

It has been a year since the market hit bottom and seven months since Wall Street began an extraordinary string of gains. So who's worried now?

In the week to Friday, the Dow Jones Industrials rose 1.07 percent to 9,674.68 while the NASDAQ advanced 1.85 percent to 1,915.31.

The Standard and Poor's 500 broad-market meanwhile advanced 0.8 percent 1,038.06.

Since the "bottom" hit on Oct. 9, 2002, the Dow and S&P index have gained some 33 percent and the NASDAQ more than 70 percent.

Steve Galbraith at Morgan Stanley said he is concerned that investors may be pushing up stock prices too fast, in a fashion reminiscent of the bubble that burst in 2000.

"Our biggest fear at this point is that the lunatic fringe is again engaging in behavior eerily reminiscent of the bubble," he said.

"Our concern arises because individual investors are only just now kicking back into gear in terms of putting money into the equity market. We have a hard time believing such market schizophrenia is a long-term positive for investors' mental health or the health of our capital markets. Institutional memory is proving to be remarkably short," Galbraith said.

But markets have been encouraged by tentative signs of a healing of the labor market, with September payrolls growing by a modest 57,000 and weekly jobless claims easing slightly.

Ethan Harris at Lehman Brothers said some are skeptical after false recoveries in the past two years, but he thinks the economy will reawaken.

"Although the evidence is far from conclusive, there are growing signs that the corporate sector is coming out of hibernation," he said. "With a 57,000 payroll gain in September and with jobless claims at their lowest level in eight months, it appears that a slow pickup in employment has begun."

"We continue to expect a relatively moderate recovery in the year ahead, but this recovery looks a lot more sustainable that the false dawns of the past two years," he said.

Among active shares in the past week, Yahoo jumped 9.99 percent to 43.16 after topping Wall Street estimates with a strong ernings report helped by revenue growth from advertising and fees.

But General Electric dropped 4.87 percent for the week to 29.32 after it met Wall Street forecasts for third-quarter earnings but offered a lukewarm outlook for the coming months.

Motorola jumped 12.3 percent to 13.79 as investors cheered a plan to spin off its semiconductor division to concentrate on the telecom sector.

PepsiCo advanced 1.69 percent to 48.00 after the soft drink and snack giant reported increased quarterly earnings.

Alcoa climbed 5.61 percent to 29.73 after it beat forecasts for its results.

But Computer Associates tumbled 12.83 percent to 23.50 dollars after the departure of three executives following an internal probe into accounting irregularities.

The markets will be watching results from other compies in the coming week, including Altria, Apple, Bank of America, Caterpillar, Coca-Cola, Delta Air Lines, Ford, General Motors, Intel, Sun Microsystems, Motorola and Merrill Lynch.

Bonds fell in volatile trade over the past week. The yield on the 10-year US Treasury bond rose to 4.238 percent from 4.195 percent a week earlier, while the yield on the 30-year bond jumped to 5.174 percent from 5.098 percent. Bond yields and prices move in opposite directions.
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