Sun, May 23, 2004 - Page 10 News List

Wall Street avoids a meltdown, but can't make progress


Wall Street was able to avoid a meltdown over the past week, but was unable to generate any forward momentum either as investors weighed the risks of higher interest rates, global security and oil prices.

The Dow Jones Industrial Average fell 0.46 percent for the week to Friday to end at 9,966.74 and the broad-market Standard & Poor's 500 index dipped 0.18 percent to 1,093.56.

The technology-heavy NASDAQ composite managed to post a weekly gain of 0.41 percent to 1,912.09.

The market had to come to grips with surging oil prices, which hit a record early in the week above US$41 a barrel in New York before settling back on hopes that increased output from OPEC members will ease supply concerns.

The back-and-forth movement of the market and several failed attempts at rallies over the week suggest the market is indecisive.

"We remain in a tug-of-war between the good economy and corporate earnings and geopolitical fears," said Alfred Goldman at AG Edwards.

"Historically, the economy has won out. Last week's lows still stand as an important support point for the immediate future."

Tobias Levkovich at Smith Barney advised caution, saying the market correction may have to run further.

"Many investors appear preoccupied with developing rationales for diving back into the equity market, but we continue to envision further declines," Levkovich said, saying buyers should wait until a steeper correction clears out speculative cash.

"We would stress that the signs of investor capitulation are not evident, in our opinion, with a buy on the dips mentality still very much in place," he said. "Thus, we contend that it is not safe to go back into the equities' waters yet."

Levkovich said investors may need some clarity about the US presidential election before a true rally can begin.

"Thus, we still envision a difficult market over the next few months, potentially until the fourth quarter when a variety of positive developments could lead stocks higher."

Richard Cripps at Legg Mason said investor sentiment remains pressured, but argues that this is a good time to buy bargains, projecting the S&P 500 will hit 1,200 by mid-year.

"The rise in crude oil, bond yields, and uncertainty in Iraq are taking their toll on investor sentiment," he said.

"Current headlines are negative and November's presidential election amplifies uncertainty. However, just as the headlines are disturbing and seem to overwhelm more constructive news, so is the likelihood that they are reflected in today's stock prices.

From an investor's standpoint, opportunity is usually more appealing when predicting the future seems difficult and sentiment is subdued."

The bond market got a bit of relief as interest rate fears eased. The yield on the 10-year US Treasury bond dipped to 4.764 percent from 4.788 percent a week earlier and that on the 30-year bond to 5.460 percent from 5.503 percent.

Bond yields and prices move in opposite directions.

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