Star-Bulletin news services
Speculation may be
main stock catalyst
NEW YORK >> Wall Street investors who rely on earnings and economic fundamentals to guide them were frustrated this past week: Stocks snapped their five-week rally, falling largely on speculation about the Bush administration's dollar policy and fears about mad cow disease.
The emphasis away from corporate profits may seem surprising. But analysts say headlines from beyond the economic mainstream might be the major catalysts that drive trading during the usually quiet summer months.
Analysts believe the kind of skittishness seen this past week is a remnant of the bear market.
"We've seen this happen where we've had nice rallies on three to four occasions in the past three years," said John B. Leo, director of growth funds for Northern Trust. "There's concern the rally will run out of steam and could be another head fake within a continuing bear market."
The Standard & Poor's 500 and Nasdaq composite indexes broke a five-week winning streak, while the Dow Jones industrials ended three weeks of gains despite upbeat earnings from component Home Depot.
Analysts said investors were reacting to ambiguous remarks from Treasury Secretary John Snow that suggested the United States was backing away from a strong dollar policy, even though the government later said it supported a strong dollar.
On Tuesday, the market was also jolted by a case of mad cow disease in Canada as well as renewed terrorism fears after the U.S. government raised the national alert level, saying there was a risk of attacks. Stocks partly recovered later in the week on news that Congress passed a slimmed-down version of President Bush's proposed tax cut.
"What markets don't like is uncertainty," said Brian Pears, head equity trader at Victory Capital Management in Cleveland. "A weak dollar is not necessarily a weak thing for the market ... but when doubts creep in ... you see a dramatic reaction."
Indeed, some analysts believe this past week's trading on moderate volume and speculation might be a sign of things to come in the next weeks. They note that after several weeks of rallies on upbeat earnings, investors are looking for stronger evidence of a recovery before sending stocks higher.
For the week, the Dow fell 77.59, or 0.9 percent. It closed yesterday at 8,601.38. The Nasdaq had a weekly loss of 28.44, or 1.9 percent, closing at 1,510.09 yesterday. For the week, the Standard & Poor's 500 index dropped 11.08, or 1.2 percent, to finish at 933.22.
But Russell 2000 index had a weekly gain of 3.71, or 0.9 percent, closing at 418.40.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 8,916.23, down 73.64 from the previous week. A year ago, the index was at 10,250.64.
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