NEW YORK >> Many on Wall Street cheered the recent New Year's rally, noting that early January gains historically bode well for the entire year. But the market's choppy trading in subsequent days might be more telling -- it reveals investors' doubts about the market's long-term outlook. Stock volatility reflects
market’s uncertain
long-term prospectsBy Hope Yen
Associated PressThe Dow Jones industrial average posted its best ever performance for the first three days of a new year, surging nearly 432 points before it began lurching up and down for the rest of this past week. The overall gains raised hope of better prospects, though some analysts remained skeptical.
The January barometer, as it's known, dictates that if the first five days on average finish higher, then investors can expect gains for the month and entire year. Early January gains led to yearly advances each year since 1950, with the exception of four times, according to the Stock Trader's Almanac.
"It can be very misleading," said Richard A. Dickson, senior market strategist at Lowry's Research Reports. His firm found that while January gains often resulted in a yearly advance, the market also suffered sharp volatility at mid-year, leading to a great deal of pain for investors.
Dickson said more noteworthy were the weak volume and low participation in the past week from everyday investors, which signaled a lack of commitment to stocks and provided additional support for predictions of continued instability.
"A lot of people are sitting on the sidelines," he said. "It's a professional market, with short-term trading and hedge funds. That's why we're seeing violent moves to the upside and downside."
The market's three main gauges posted their second straight weekly advance yesterday. Analysts, describing investors as seemingly more upbeat, believed the market's recent declines reflected profit-taking and a natural consolidation after a big rally.
"What's developing in the market is that investors are starting to look beyond the end of their noses," said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons Inc. "I think investors' spirits will continue to improve."
Others were more wary. They said much of the gains during the week came on news of President Bush's proposed tax cut, which might be quite different in its final form.
In addition, investors were quick to sell on negative news Thursday, when bearish earning news from Alcoa and Gateway led to a 145-point Dow selloff, the biggest decline in a month. And yesterday, an unexpectedly weak jobs report flustered investors, leading to choppy trading before finishing modestly higher.
"The proposed tax cut was an event that was very positive, but it's not going to be continuous for the whole year," said Tracy Herrick, chief investment strategist at Jefferies & Co.
Dickson agreed. He said investors should expect greater volatility in the months ahead until questions about longer-term factors, such as a war with Iraq, inflation risks and the strength of corporate profits, are more resolved.
"Investors need to see some kind of stabilization," Dickson said.
The market's triple-digit jumps gave stocks their second straight winning week. The Dow had a weekly gain of 183.26, or 2.1 percent. It closed yesterday at 8,784.95.
For the week, the Nasdaq composite index rose 60.64, or 4.4 percent, and the Standard & Poor's 500 index advanced 18.98, or 2.1 percent.
The Russell 2000 index, the barometer of smaller company stocks, had a weekly gain of 6.13, or 1.6 percent.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 8,758.43, up 165.21 from last week. A year ago, the index was at 10,790.86.
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