Star-Bulletin news services
October markets avoided
scare, November may
be different story
NEW YORK >> Wall Street resumed its advance this past week, posting a monthly gain despite October's reputation for market crashes. That offered hope to upbeat investors who are counting on the market's traditional year-end rally to add to their gains.
But while the outlook for the rest of 2003 appears promising, analysts say investors might be a bit too confident and that November could prove to be more challenging for the market than typical.
"There's a lot of optimism, and I think that's going to hinder this market going into November," said Chris Johnson, manager of quantitative analysis at Schaeffer's Investment Research.
He noted that after a particularly strong third-quarter earnings and economic performance, estimates for the fourth quarter and 2004 appear a little high and will likely be lowered in the coming weeks. "That always will shake the market up a bit," Johnson said.
October is known as the jinx month because of market crashes in 1929 and 1987, and the month marked a multiyear low for the main indexes last year. Many analysts worried that the market was due for a similar pullback this year following September's dismal losses and after rallying since mid-March.
But this year, the three main gauges posted an October gain as investors seized the opportunity to pick up bargains from September's declines. They also sent stocks sharply higher Tuesday after the Federal Reserve indicated it wouldn't likely raise interest rates for a while.
"I'm happy it went as well as it did and there were no disasters," said Barry Berman, head trader for Robert W. Baird & Co. "The fact of the matter is that people are buying a lot of these stocks because a lot of things are in place such as low interest rates."
November, meanwhile, is known as the start of the "best six months" of the year as investors start to put year-end bonuses and dividends to work, which typically leads to a "Santa Claus" rally and a "January effect" of market advances.
Analysts say this year's year-end rally could be more muted or vulnerable to some November declines first.
Johnson noted a common measure of investor anxiety, the Chicago Board Options Exchange's volatility index, is trading at 52-week lows at below 16. Many believe a reading below 20 may indicate investor overconfidence that makes the market vulnerable to future declines.
In addition, it is unlikely that earnings and economic data in the coming quarters will be as strong as the third quarter, as fiscal tax cuts lose their effect over time.
The Dow Jones industrials ended the week up 218.66, or 2.3 percent, finishing at 9,801.12. The Standard & Poor's 500 rose 21.80, or 2.1 percent, during the week to 1,050.71.
The Nasdaq composite index gained 66.62, or 3.6 percent, to close the week at 1,932.21.
The Russell 2000 index ended the week up 21.79, or 4.3 percent, closing at 528.22.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 10,224.52, up 241.02 from the previous week. A year ago, the index was at 8,502.20.
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