Analysts wary
about Dow’s bull run

Some experts dismiss the 20.9% rise
merely as a big bounce off of a massive selloff

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By Amy Baldwin
Associated Press

NEW YORK >> Talk of a new bull market forming spread throughout Wall Street as the Dow Jones industrials ended the week in that territory. But plenty of bears remain on the prowl, cautioning that stocks remain on unstable ground and that the market could be getting ahead of itself.

The Dow ended yesterday at 9,959.71, landing in what's technically bull market ground as it finished 20.9 percent above its Sept. 21 low of 8,235.81. A bull market is defined as a 20 percent or greater recovery from the low.

Still, many analysts and traders called the Dow's move artificial, reasoning that most of the gains from the low point represent a rebound from the massive selloff that followed the Sept. 11 terrorist attacks, rather than buying on proof that business is turning around.

"The market has moved off an incredibly depressed level that we got to after forced selling, mostly by insurance companies that had to sell to offset their losses after the Sept. 11 terrorist attacks," said Todd Clark, co-head of trading at WR Hambrecht. "That created an artificial low price for the stock market. We have simply bounced back to more of an equilibrium."

Many analysts don't expect the market to keep rallying the way it has since that initial post-attack selloff. After all, they say, it's still unclear when the economy will turn around. The market is also vulnerable to political uncertainty as the United States continues to have military forces in Afghanistan.

"I think we have entered a market that is in a trading range until we get more of an idea where the economy is heading," Clark said. "It's premature to call it a new bull market."

Clark predicted that the market's major indicators will trade in a 10 percent range from their current levels; for the Dow, that would be a range of between roughly 9,460 and 10,460.

While it was fairly easy for the market to recapture its attack-related losses, another big move up will be harder to achieve and will require the backing of improved earnings or outlooks, said Jon Brorson, director of equities at Northern Trust in Chicago.

"If we can say that earnings are going to start coming through, then the market will go higher," Brorson said.

Until there's hard evidence that earnings and the economy are improving, investors will at times be inclined to take profits, limiting the market's upside potential.

"There will be some incentive to sell, to say, 'The market is 20 percent higher. Why not take some profits?,"' Brorson said.

Meanwhile, some individual investors have likewise refrained from getting overly excited about the market's recent run-up. For example, when Avi Horwitz's friends have asked him recently about whether there's a new bull market ahead or if the Dow will soon pierce the 10,000 level, a spot it hasn't closed above since Sept. 5, he says it doesn't matter to him.

"It's been there, and obviously we see it can be taken away," said Horwitz, a certified public accountant in New York, of bull market levels. "From my perspective, it still comes down to watching the companies you own and seeing what the fundamentals are doing."

For the week, the Dow climbed 92.72 points, or 0.9 percent, after rising 125.03 to 9,959.71 yesterday.

The broader market finished with more modest gains. The Nasdaq composite index inched up 4.62, or 0.2 percent, for the week, after advancing 28.15 yesterday to 1,903.20. The Standard & Poor's 500 finished the week up 11.69, or 1.0 percent, after rising 13.31 to 1,150.34.

The Russell 2000 index, which tracks smaller company stocks, advanced 7.11, or 1.6 percent, for the week, after finishing yesterday up 6.11 at 458.42.