NEW YORK >> Wall Street's steady march upward sure seems awesome. A look at who's participating, however, indicates it may not be as encouraging as it appears. Fourth-quarter rally may
just be a matter of timingBy Amy Baldwin
Associated PressMany individual investors aren't involved in a rally that, analysts are quick to point out, often happens in the year's last three months as part of the dynamics of the stock market and of business.
It's the time of year when companies and individuals spend more money, giving profits a positive jolt. And portfolio managers, well aware of the market's tendency to rally late in the year, buy stocks to be part of it -- and to make their positions look better for the end-of-year scrutiny by shareholders.
But a lot of money, such as Jeff Bradfield's, isn't going into stocks. "Despite the rallies, my personal feeling is cautious," said Bradfield, a 33 year-old consultant in Indianapolis.
Bradfield hasn't increased the amount of money he regularly invests each month in mutual funds and he's not buying individual stocks like he did in the bull market. Instead, he's saving more money, and thinking about putting more into real estate.
"I probably made the mistake of overallocating my portfolio to equity holdings," Bradfield said.
During the fourth quarter last year, stocks shot up but started falling again in early 2002 when profits and the economy didn't pick up. Analysts are worried that the same scenario will play out again in 2003.
"We are still not out of the woods. We cannot say we have broken the back of the bear yet," said Bill Barker, investment strategy consultant at RBC Dain Rauscher in Dallas. "But certainly the sentiment on Wall Street is much improved."
No question, the market has been cheerful. So far this quarter, the Dow Jones industrial average has gained 16 percent, the Nasdaq composite has surged 25.3 percent, and the Standard & Poor's 500 has risen 14.2 percent.
Even bad news has failed to derail Wall Street's upward momentum. Despite a huge drop in housing construction reported Wednesday, the Dow rose nearly 150 points and the Nasdaq climbed 44.
The indexes ended the past week higher -- the seventh winning week in a row for the Dow -- despite a profit warning earlier from Home Depot, after which investors briefly worried that consumer spending was waning. The Dow hadn't enjoyed a winning stretch that long since eight straight weekly wins that ended March 20, 1998.
"The market is not really focused on going forward and the lack of discernible growth in the quarters ahead. That is where the risk is," warned Brian Belski, fundamental market strategist for US Bancorp Piper Jaffray.
But there are plenty of bulls on Wall Street, and they have compelling arguments too.
David Sowerby contends that the third quarter was so dreadful -- the stock market's worst quarter in 15 years, with each of the three major indexes falling more than 18 percent -- that it represented the end of the bear market. Indeed, that kind of decline has marked the end of past bear markets.
Sowerby, chief market analyst at Loomis, Sayles & Co., also sees fundamental reasons why stocks are worthy buys now, including better earnings prospects following the Federal Reserve's 12th interest rate cut, made earlier this month.
"The valuations on stocks are more compelling," he said. "Corporate earnings -- after disappointing (warnings) in early September -- were on average better than expected in October and November. The Fed gave us another shot of vitamin B by pushing rates down to even lower levels. We have had discussions of a third tax cut. Inflation has stayed low and productivity has been healthy," Sowerby said. "That's the environment I want when I go shopping for stocks," he said.
For the week, the Dow rose 225.75, or 2.6 percent. But yesterday the Dow fell 40.31 to 8,804.84.
The Nasdaq had a weekly gain of 57.60 points, or 4.1 percent. Yesterday, the Nasdaq rose 1.19 to 1,468.74.
The S&P had a weekly advance of 20.72, or 2.3 percent. But yesterday the S&P declined 3.21 to 930.55.
The Russell 2000 index, which tracks smaller companies stocks, ended the week up 14.08, or 3.7 percent. Yesterday, the Russell rose 2.32 to 400.00.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 8,783.13, up 199.08 from last week. A year ago, the index was 10,596.40.
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