Sun, Oct 23, 2005 - Page 10 News List

Wall Street hopes for `Santa Claus' rally to steer rebound


Despite a rocky month last month, some on Wall Street are holding out hopes for a positive year if the market gets its traditional seasonal rebound or "Santa Claus" rally.

The past week was mixed for the major indexes.

The Dow Jones Industrial Average lost ground for a sixth straight week, giving back 0.74 percent over the five sessions to end Friday at 10,215.22.

The Standard and Poor's 500 index dropped 0.61 percent for the week to 1,179.59. The broad-market index is down more than 5 percent from its peak last month.

The technology-heavy NASDAQ index however rose 0.85 percent to 2,082.21.

Despite a strong midweek rally, the markets remained tense amid concerns about inflation, the good prospect of higher interest rates and the possibility that rate hikes by the Federal Reserve may choke off growth as well as inflation.

The latest data showed US wholesale prices surged 1.9 percent last month after consumer inflation hit a steeper-than-expected 1.2 percent rise. While some economists say "core" inflation excluding food and energy remains tame, others worry that higher energy costs will spill over into the rest of the economy.

"The upward tilt in both the consumer and business inflation attitudes comes at a potentially dangerous point in the cycle," Citigroup economist Robert DiClemente said.

"It is a low-probability event but should rising expectations spill over into wage-price setting behavior, it would be more difficult for the Fed to contain inflation without forcing economic growth below its potential for a sustained period," he said.

Al Kugel, chief investment strategist at Atlantic Trust/Stein Roe, said that the Federal Reserve's hawkish comments on inflation have spooked investors.

"But we haven't had any bad inflation news especially if you take out energy," Kugel said, adding that the market is "really frightened that the [Fed] is putting more weight on the inflation threat than seems warranted."

The broad market remains down about 2.6 percent for the year, but some remain optimistic about a positive finish for this year.

Bob Dickey at RBC Dain Rauscher said the market is going through a "general correction" that may take more time to play out.

"We believe that the current pullback will find a bottom within the next three weeks and will present us with one of the best overall buying opportunities of the year," Dickey said.

"We cannot say that we are there yet, but we are getting closer to a bottom that will likely lead to a meaningful year-end rally," he said.

David Briggs at Federated Investments said the season patterns favor a rebound.

"Sloppy Octobers notwithstanding, the last quarter overall also has been the best for equity investors," he said.

"That's because the Halloween equity dip often proves to be the relative low for the quarter, setting up a Santa Claus rally as the old year winds down," he said.

Despite jitters about the auto industry, real estate and other factors, Briggs said the market is ripe for a rally.

Bonds firmed over the past week. The yield on the 10-year US Treasury bond fell to 4.43 percent from 4.49 percent a week earlier.

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