Investors still seeking
sustainable market rally

Wednesday's best 1-day showing in 8 months
fizzled over the last 2 days of the week

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By Lisa Singhania
Associated Press

NEW YORK >> After two years of losses, Wall Street is grateful for any gains it can get. But as investors are discovering, an advance alone is not enough. A rally that can extend itself, rather than fizzle out, has so far proved elusive -- something analysts say will have to change for a market upturn to truly take hold.

"A lot of people are still not confident in the economy or in the market. Until we see more confidence, you're going to have a market that backs and fills rather than moves and stays higher," said Michael Murphy, head trader at Wachovia Securities. "A lot of people are afraid to make a commitment right now, for fear it's still early and they will buy the wrong thing."

This past week, investors cheered up when stronger-than-expected profits from Cisco Systems triggered the market's most powerful rally since the rebound that followed September's post-terrorist attack selloff. The Dow Jones industrials soared 305 points Wednesday, while the Nasdaq composite index climbed 122 and the S&P notched up 39.

The enthusiasm did not last. On Thursday and yesterday, stocks pulled back. More significantly, trading volume dropped off -- highlighting investors' apathy. Instead of being inspired by the advance and flocking to buy more stocks, they continued to stay away.

Analysts say the retreat reflected the fact that the rally was really a rebound, rather than any more fundamental shift in market conditions or sentiment. Stock prices had fallen sharply during previous sessions -- the Nasdaq and S&P were at October levels -- and Wall Street was simply snapping back.

"When you look at what we rallied off of, it wasn't much to talk about. Technology has been getting its butt kicked for the last two months, and especially the last few weeks," said Bryan Piskorowski, market commentator at Prudential Securities. "It was more of a rebound than people instituting any major new buy programs."

That's a pattern investors know all too well.

It's been months since the Dow, Nasdaq and S&P were able to string together more than three consecutive winning sessions. The failure has been particularly noticeable since April 1, when first-quarter earnings reports began trickling in. The Nasdaq and S&P have finished lower in 21 of the last 30 sessions.

The few positive days there have been have failed to propel the averages higher. Year-to-date, the Nasdaq has tumbled 17 percent, the Dow has lost almost 1.0 percent and the S&P has dropped more than 7 percent.

Analysts say that without any consistent improvement in corporate earnings and outlooks, and with the continuing tension in the Middle East, investors have grown increasingly skeptical. Economic news, which has steadily improved, has taken a back seat to the market's desire to see business improve.

"This is very much remains a show-me market: Show me the money and show me profits," said Tom Galvin, chief investment officer at Credit Suisse First Boston.

"Until we get clear evidence of that, which is more of a June or July affair when reporting season comes around again, investors are going to be reluctant."

Indeed, earnings reports appear to be the most likely catalyst for a sustainable rally. Many retailers are expected to release results over the next few weeks, but the next big bulk of earnings won't come until midsummer.

Analysts expect the numbers generally to be better than the first quarter, but significant improvement might not come until the second half of the year.

As a result, investors have low expectations. After being so severely disappointed by lackluster results and forecasts this past month and watching the market drop, few are rushing to invest.

It was a disappointing week on Wall Street.

The Dow fell 66.71, or 0.7 percent, for the week, after falling 97.50 to 9,939.92 yesterday.

It was the third straight week for the S&P and Nasdaq to close lower.

The Nasdaq posted a weekly loss of 12.18, or 0.8 percent. Yesterday the index tumbled 49.64 to 1,600.85.

For the week, the S&P fell 18.44, or 1.7 percent, to 1,054.99, a loss compounded by an 18.02-point fall yesterday.

The biggest drop was in the Russell 2000, which tracks smaller companies' stocks. It fell 19.59, or 3.8 percent, to 492.73, after losing 8.66 yesterday.

The Wilshire Associates Equity Index, which represents the combined market value of all New York Stock Exchange, American Stock Exchange and Nasdaq issues, ended the week at $10.017 trillion, off $184.570 billion from the previous week. A year ago, the index was $11.491 trillion.