Wall Street’s spectacular run has hit a speed bump, with investors pausing to digest gains and pondering how far the rally can go in an economy showing signs of recovery along with lingering weakness.
The main stock indexes pulled back from a four-week run that saw gains of around 15 percent for the broad market.
The Dow Jones Industrial Average of blue-chips fell 0.52 percent for the week to end at 9,321.40 after notching a fresh nine-month high earlier in the week.
The Standard & Poor’s 500 index shed 0.63 percent over the week to 1,004.09, while the tech-dominated NASDAQ retreated 0.74 percent to 1,985.52.
The broad market has rallied more than 45 percent from lows hit in early March amid expectations for recovery, but is still down around 35 percent from all-time highs in October 2007.
The most recent rally, however, has given way to consolidation, and doubts about the recovery have grown amid lackluster data on US retail sales and consumer confidence.
“The strong positive market momentum seen in mid-to-late July has dramatically slowed,” said Fred Dickson, chief market strategist at DA Davidson & Co.
“We are not looking for major catalysts to lift the market over the next two to three weeks. Historically late August and September is a difficult time for the stock market, especially during years where the market has made a substantial move as buyers traditionally wait for third-quarter guidance and earnings releases before making new major stock purchase commitments,” Dickson said.
Myles Zyblock, analyst at RBC Dominion Securities, said that the market was now being plagued by doubts after the strong runup.
“Absent a sustained economic recovery, equity market gains will prove difficult to keep and nearly impossible to build upon, in our view,” he said. “At some point down the road, we might indeed discover that the labor market failed to recover, that the economic upturn proved brief and that the equity market rally was merely a multimonth pop in a major downtrend.”
However, he said there were signs the economy was on the mend.
“Specifically, the leading economic indicators that have worked for decades remind us that the economic recovery is progressing,” he said. “In fact, some of these same indicators point to the possibility of a powerful surge in production activity starting as early as this quarter and extending out into the first half of 2010.”
Doug Sandler at Riverfront Investment Group said that despite the fear that rally has gone too far, it pays to look back to historical highs rather than the March lows, which he considers an anomaly.
“We should discount the extraordinary lows and excessively cheap valuations that were reached by the S&P 500 in March 2009,” Sandler said. “Ignoring the extreme valuations from March, we think that the market is currently neither cheap nor expensive.”
Linda Duessel at Federated Investors said she expected the economy to recover with help from the Federal Reserve’s commitment to easy money and other stimulative efforts.
At its meeting on Wednesday, she said, “The Fed made clear it’s in no rush to pull back.”
“This means money should remain cheap and growth could surprise to the upside in the second half,” she added. “So while commentators are suggesting a correction into the worst month of the year [September] — and this very well could happen — we would not want to lose sight of the continuing bullish story.”
Bonds gained on the shift away from stocks. The yield on the 10-year Treasury note dropped to 3.558 percent from 3.854 percent a week earlier and that on the 30-year bond declined to 4.406 percent from 4.603 percent. Bond yields and prices move in opposite directions.
In the coming week, the economic calendar is light with reports due on wholesale prices, and new and existing home sales. Earnings reports are due from tech giant Hewlett-Packard and home improvement retailer Home Depot.
RETHINK? The defense ministry and Navy Command Headquarters could take over the indigenous submarine project and change its production timeline, a source said Admiral Huang Shu-kuang’s (黃曙光) resignation as head of the Indigenous Submarine Program and as a member of the National Security Council could affect the production of submarines, a source said yesterday. Huang in a statement last night said he had decided to resign due to national security concerns while expressing the hope that it would put a stop to political wrangling that only undermines the advancement of the nation’s defense capabilities. Taiwan People’s Party Legislator Vivian Huang (黃珊珊) yesterday said that the admiral, her older brother, felt it was time for him to step down and that he had completed what he
Taiwan has experienced its most significant improvement in the QS World University Rankings by Subject, data provided on Sunday by international higher education analyst Quacquarelli Symonds (QS) showed. Compared with last year’s edition of the rankings, which measure academic excellence and influence, Taiwanese universities made great improvements in the H Index metric, which evaluates research productivity and its impact, with a notable 30 percent increase overall, QS said. Taiwanese universities also made notable progress in the Citations per Paper metric, which measures the impact of research, achieving a 13 percent increase. Taiwanese universities gained 10 percent in Academic Reputation, but declined 18 percent
UNDER DISCUSSION: The combatant command would integrate fast attack boat and anti-ship missile groups to defend waters closest to the coastline, a source said The military could establish a new combatant command as early as 2026, which would be tasked with defending Taiwan’s territorial waters 24 nautical miles (44.4km) from the nation’s coastline, a source familiar with the matter said yesterday. The new command, which would fall under the Naval Command Headquarters, would be led by a vice admiral and integrate existing fast attack boat and anti-ship missile groups, along with the Naval Maritime Surveillance and Reconnaissance Command, said the source, who asked to remain anonymous. It could be launched by 2026, but details are being discussed and no final timetable has been announced, the source
SHOT IN THE ARM: The new system can be integrated with Avenger and Stinger missiles to bolster regional air defense capabilities, a defense ministry report said Domestically developed Land Sword II (陸射劍二) missiles were successfully launched and hit target drones during a live-fire exercise at the Jiupeng Military Base in Pingtung County yesterday. The missiles, developed by the Chungshan Institute of Science and Technology (CSIST), were originally scheduled to launch on Tuesday last week, after the Tomb Sweeping Day holiday long weekend, but were postponed to yesterday due to weather conditions. Local residents and military enthusiasts gathered outside the base to watch the missile tests, with the first one launching at 9:10am. The Land Sword II system, which is derived from the Sky Sword II (天劍二) series, was turned