Wall Street’s stunning two-month rally has stalled, with investors turning cautious about prospects for an early recovery from recession in the face of sluggish economic data.
The Dow Jones Industrial Average retreated 3.57 percent in the week to Friday to 8.268.64, ending a string of gains over eight of the previous nine weeks.
The tech-dominated NASDAQ shed 3.38 percent to 1,680.14 while broad-market Standard & Poor’s 500 index tumbled 4.99 percent in the week to 882.88.
While the broad US market remains up by some 30 percent from lows hit in early March, some investors are now questioning whether the rally has gone too far too fast in view of still-questionable economic news.
“Investors just don’t believe in this rally,” said Linda Duessel, equity strategist at Federated Investors. “A sustainable rally needs a reality check. We’ve been saying this rally moved too far, too fast and could use a breather. This week, it got it.”
The market was disappointed by reports over the past week showing a surprise 0.4 percent drop in US retail sales, suggesting American consumers are not yet ready to resume their spending ways in view of ongoing job losses.
“Investors were reminded this week that ‘less-bad’ doesn’t necessarily mean good,” said Sal Guatieri, economist at BMO Capital Markets. “American consumers, though emerging from their deep hibernation of late last year, are still hunkering down.”
Ed Yardeni at Yardeni Research said the market was starting to question the notion of “green shoots” that will lead to an economic recovery.
“We all want to believe that a recovery is coming. So maybe we are imagining one,” he said.
A number of reports in the past week suggested sluggish conditions, but some argue that the easing of the downturn may presage a recovery sometime soon.
“The fact that we have started seeing the silver linings in some very dark clouds tells me psychology is changing dramatically,” Joel Naroff of Naroff Economic Advisors said.
“Worries about a never-ending recession have been replaced by hopes that better times are near. Because I have been arguing that confidence is the key to ending the recession, the upswing in outlook is the most optimistic development that could have occurred,” he said.
Bonds rebounded over the past week as investors looked for safety. The yield on the 10-year US Treasury bond eased to 3.123 percent from 3.293 percent a week earlier and that on the 30-year bond dropped to 4.083 percent from 4.274 percent. Bond yields and prices move in opposite directions.
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