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Stock market’s rise
draws individual
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NEW YORK >> Wall Street's recent surge is tempting badly burned investors, and some -- but not all -- are getting back into the stock market.
Stocks have been on an upward climb for about three months now, and that's making many market-watchers wonder if the bull market has really returned.
Not all are convinced, and it's no surprise why. Marcus Roland of Lexington, Ky., has seen his individual retirement account shrivel from $60,000 to $11,000 since the stock market began souring in 2000, with the Dow Jones industrials dropping from a record high of 11,722 to a five-year low of 7,286 in the ensuing three years. Some other indexes dropped even more.
Roland still can't bear to look at his 401(k) statements. But the 36-year-old lawyer is getting prepared for a return to stocks, researching companies he may add to his battered portfolio. He's focusing this time on blue chips like General Electric Co. rather than risker technology issues.
"I have been talking to people who are in the market and to some brokers I know about what the climate is and what people are considering to be hot moves," he said. "I am far more hopeful than I was a year ago."
There are plenty of factors to fuel a bullish view.
Much of corporate America reported better-than-expected first-quarter earnings, the war in Iraq was swift and economic data has been turning a little more positive. Federal Reserve Chairman Alan Greenspan has made several upbeat assessments of the economy lately.
Wall Street has responded, sending stocks soaring. The Dow Jones industrials on Wednesday closed above 9,000 for the first time in nearly 10 months. The Nasdaq composite index is at levels last witnessed just over a year ago, while the Standard & Poor's 500 index is at year-ago levels.
Since March 11, when the rallies began, the Dow has risen about 20 percent, the Nasdaq has gained 28 percent and the S&P has increased by 23 percent. The Dow is up almost 9 percent for the year, the Nasdaq up about 22 percent and the S&P up 12 percent.
Many investors fear the rally could lose steam quickly, and they don't want to be fooled again.
"We've had such a tough decline and we (still) have so much money on the sidelines," said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif.
"You have people who say they are bullish," Lydon said. "But saying they are bullish and committing cash to the market are two different things."
Market observers attribute much of the recent buying to institutional investors, such as mutual fund managers, not smaller, individual stock buyers.
That's because professional investors can't afford to wait to see if a bull market is the real thing, said Michael Murphy, head trader at Wachovia Securities in Baltimore. Institutional investors who don't jump in at the beginning of a bullish run risk turning in subpar annual returns to their shareholders.
Institutional investors "are chasing performance, because the year is nearly half over," Murphy said.
There are some individuals buying stocks -- but with particular caution.
Rick Davitt, for instance, increased the stock portion of his savings portfolio from 20 to 25 percent. Davitt, 44, of Huntington Beach, Calif., bought mostly safer, dividend-paying stocks such as ChevronTexaco Corp., Duke Energy Corp. and PepsiCo Inc.
"I think we may have the footings of a good recovery and so I am getting more into stocks. I plan over the next six months to move that (stock portion) up to maybe 40 percent if things remain stable," he said.
Davitt is a former executive at a networking company and has also taken part in the tech rally, buying shares of networker Cisco Systems Inc.
"I'm not a bull yet," he said. "But I am someone who is extremely optimistic that what we are seeing is the start of a very good opportunity."
The market's major indexes ended the week higher, despite seeing yesterday's big rally fizzle. The Dow has finished six of the past eight weeks with gains, while the S&P and Nasdaq have had seven winning weeks out of the past eight.
For the week, the Dow rose 212.53, or 2.4 percent. It closed yesterday at 9,062.79.
The Nasdaq had a weekly advance of 31.51, or 2 percent, closing at 1,627.42 yesterday. The S&P had a weekly gain of 24.17, or 2.5 percent, finishing at 987.76.
For the week, the Russell 2000 index, the barometer of smaller company stocks, rose 12.94, or 2.9 percent, closing at 453.94.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 9,452.54, up 233.65. A year ago, the index was at 9,752.69.
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