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Wall Street chalks up second consecutive week of gains

After two straight weeks of gains on Wall Street, analysts are debating whether the growth marks the end of a catch-up period or the start of a summer rally.

The past week saw the Dow Jones Industrial Average gain 0.67 percent to 10,542.55 and the Standard and Poor's 500 broad-market index advance 0.8 percent to 1,198.78.

The NASDAQ composite posted a weekly gain of 1.43 percent to 2,075.73.

A series of positive economic reports helped the market shake off the "soft patch" scenario -- first-quarter economic growth was revised up to show a 3.5 percent expansion, durable goods and consumer spending held firm and the housing sector set more records.

"Thanks to yet another solid batch of US economic releases this week, the 'soft patch' characterized by the Fed some weeks ago is now beginning to seem like a distant memory," TD Bank Financial economist Carl Gomez said.

With the economic news brighter, the market appears to have regained momentum, say analysts.

"The market has been pretty strong in the past six weeks except for [the effects of] some hedge fund liquidations," said Scott Jacobson, analyst at Jefferies and Co.

"The momentum looks like it wants to continue the advance," he said.

Bob Dickey, strategist at RBC Dain Rauscher, said he thinks the rally has more room to run, since the major indexes have yet to reach highs for the year.

"The action this week is normal following the strong move of last week, and we believe that the rally will resume again soon," he said.

"We measure that the near-term uptrend is near the halfway point at this time. The Dow has rallied 500 points from the low and the NASDAQ has recovered about eight percent. Extending these moves for another similar leg gives us targets of 2,200 on the NASDAQ and 11,000 for the Dow. This would put the indices back to near their highs for the year, but with a good increase in the volume and bullish sentiment, we believe they could go higher than that," Dickey said.

But Merrill Lynch chief investment officer Bob Doll said the environment could be more challenging.

"Inflation is still slowly but surely increasing and the Fed will continue to tighten monetary policy, so the equity market still remains under pressure," Doll said.

Stephen Auth at Federated Investments said the slower growth may not be bad for Wall Street and that the economy could be entering a "Goldilocks scenario -- a period of `just right' growth and inflation that typically bodes well for both stocks and bonds."

The bond market appeared to buy the slow-growth scenario. The yield on the 10-year US Treasury bond fell to 4.073 percent from 4.125 percent a week earlier while that on the 30-year bond fell to 4.430 percent against 4.438 percent. Bond yields and prices move in opposite directions.
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