NYSE loses speed, but maintains upbeat mood

"[Wall Street may be seeing] the perfect storm in reverse brewing."

Kent Engelke, Anderson and Strudwick analyst

Wall Street's mood remains upbeat after two positive weeks to open the year, even if the stunning rally has lost some momentum.

In the week to Friday, the blue-chip Dow Jones Industrial Average was essentially flat, rising a fraction of a point to 10,959.87.

The blue-chip index over the past week rose above 11,000 for the first time since 2001, before losing ground to profit taking.

The broad-market Standard and Poor's 500 index meanwhile edged up 0.17 percent for the week to 1,287.61 while the NASDAQ tech-dominated index climbed 0.51 percent to 2,317.04.

Analysts said investors appear willing to jump into the market in the new year despite the same concerns as last year over a US economic slowdown and other potential setbacks.

"The mood of investors is the prime mover of the stock market, and the mood is improving," said Al Goldman, chief market strategist at AG Edwards.

"We believe this catharsis is overdue and is based on solid economic fundamentals. Stocks have been relatively unpopular for the past two years, while other asset classes have been the belle of the ball," he said.

Stephen Auth, equity analyst at Federated Investments, said another key to the recent gains is the hint from the US Federal Reserve that it will soon end its cycle of interest rate hikes with only a modest cooling of the economy.

"It's starting to look as if the central bank has engineered yet another soft landing for the economy," Auth said.

"Inflation appears tame and interest rates seem to be leveling off at a moderate level. The situation bears some resemblance to that of the mid-1990s -- a so-called `Goldilocks' period, when the economy was accelerating at a time of low interest rates and tame inflation," he said.

Kent Engelke, analyst at Anderson and Strudwick, said Wall Street may be seeing "the perfect storm in reverse brewing."

"Last year an aggressive Federal Reserve negated strong earnings," he said.

"There is a distinct possibility that both earnings and interest rates will be aligned with a further catalyst from momentum driven buyers, [such as] hedge funds," Engelke said.

Dick Green at Briefing.com offered a note of caution, saying conditions have not changed simply because of the new calendar year or the possibility of a pause from the Fed.

"The stimulus from the improved Fed outlook may keep the market rally going short term. It isn't enough, however, to fundamentally improve the economic and earnings outlook," Green said.

Bonds firmed on the prospects of an easier Fed stand on interest rates.

The yield on the 10-year US Treasury bond fell to 4.350 percent on Friday from 4.379 percent a week earlier, and that on the 30-year bond dropped to 4.525 percent against 4.547 percent. Bond yields and prices move in opposite directions.