US markets took a needed pause on Friday after a relentless 10-day run, marked by the Dow Jones Industrial Average setting new records for eight straight sessions.
While expectations of a correction were common, most analysts continued to dismiss suggestions of a new bubble and said stocks could continue to climb as long as the US Federal Reserve keeps in place its easy money policy.
Even new US Secretary of the Treasury Jacob Lew, when asked on CNBC if the markets were again overinflated, dismissed the idea.
Official figures in the past week showed that consumption appeared to be holding up amid higher gasoline prices and higher tax deductions on paychecks, and in the face of spending cutbacks by the government.
That helped keep a footing under market sentiment, taking the Dow to its newest closing record on Thursday, at 14,539.14, about 375 points beyond where the old 2007 high-mark stood before the market surge of the past two weeks.
The S&P 500 came within less than two points of its Oct. 9, 2007, record on Thursday, but could not manage a new benchmark.
Overall for the week, the Dow added 0.81 percent, ending at 14,514.11. The broader S&P 500 gained 0.62 percent to 1,560.70, while the NASDAQ Composite crept up 0.14 percent to 3,249.07.
The Dow’s record aside, the S&P’s steady gains say more about the market’s rebound, Peter Cardillo of Rockwell Global Capital said.
“It indicates the broader market is now beginning to blossom out. It’s not being confined to a list of 30 blue-chip stocks. So that means you have a greater participation of stocks moving in an upward direction,” he said.
However, whether there is more buying sentiment to keep powering the markets ahead is debatable.
“The relentless march of the equity markets has raised concerns as to whether monetary policy is fueling another bubble. The rise, so far, appears to be in line with improving economic fundamentals, which may still be underestimated,” Wells Fargo Securities analysts said.
Cardillo dismissed the bubble description, “but we’re probably reaching levels where the market needs to take a rest.”
Peter Cecchini of Cantor Fitzgerald was less confident.
“It’s a very mixed picture. There are plenty of arguments on the fundamental side, globally, that lead me to believe that the US market is way overdone given the fundamentals of the rest of the world,” he said.
The slow speed of the rise has been a good sign, some analysts say. Yet they add that it represents a caution that could easily turn to selling.
The divergence of views has left traders eying every piece of economic data and every comment from members of the Fed, whose ultra-low interest rates and continued easy money underpin the boom.
That also gives increasing importance to the Fed’s policy board meeting on Tuesday and Wednesday.
The last meeting showed increasing nervousness among some members of the Federal Open Market Committee over the risks in its stimulus efforts.
Fed Chairman Ben Bernanke has defended the current policies over the past three months. However, any sign of more support in the committee for reeling in that program could push up interest rates and the US dollar and take some wind out of stocks.