Star-Bulletin news services
Dow, S&P finish the week
flat as investors take
data in strideProspective buyers stay cautious
despite strong economic reports
NEW YORK >> When Wall Street saw another set of upbeat employment numbers this past week, it barely blinked.
The surprising lack of response could be evidence of the market's improving health: Investors, having learned a tough lesson the past three years, are approaching stocks with more rationality and emotional maturity than in the past.
"The market is behaving very well because investors are getting what they expected," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis.
Even Federal Reserve chairman Alan Greenspan, who famously warned of "irrational exuberance" during the stock market's boom years of the late 1990s, seems pleased with the pace of the economic recovery. He struck an optimistic tone in remarks to securities industry officials Thursday, and even gave stocks a late-day boost by saying the odds increasingly favor the creation of new jobs.
A much-awaited government report bore him out yesterday. Payrolls grew by 126,000 last month according to the Labor Department, far more than the 50,000 new jobs economists predicted, and the unemployment rate dipped to 6 percent from the 6.1 percent level it had been stalled at for the previous three months. The job market has been the weakest element in an otherwise robust recovery.
The employment numbers, Greenspan's comments, an industry report on manufacturing and factory order data and solid earning released during the week all reinforce the idea that the economy is strengthening. But high stock prices have caused investors to take a step back, Sohn said.
"At this point investors are saying, 'Show me the results first and then I will buy,' as opposed to what they were saying before, when the market was undervalued and they were willing to buy in advance on anticipated growth and profits," Sohn said. "A change in attitude has occurred."
It's a far cry from the feverish burst of buying that caused Greenspan such concern during the Wall Street bubble. Investors are taking a much more cautious approach these days.
"A lot of folks touched hot stoves in 2000 and got burnt," said Richard J. Nash, chief market strategist at Victory Capital Management.
"I think investors are a lot more cognizant of valuations this time around," Nash said. "It's not necessarily a bad thing for the market to have this wall of worry to climb. The fact that there's a lot of skepticism in this rally is pretty healthy."
The three main gauges posted gains in October as investors bargain shopped following declines in September. The Dow Jones industrials advanced 5.7 percent, the Nasdaq composite index rose 8.1 percent, and the Standard & Poor's 500 index gained 5.5 percent.
To sustain the rally in the coming months, analysts say investors will be looking for a steady flow of good economic news validated by rising corporate profits.
The market is bound to show its disappointment if the number of new jobs doesn't continue to rise, and there will be enormous pressure for companies to beat earnings expectations in the fourth quarter. The next gross domestic product figure also will be eagerly anticipated, particularly following the extraordinary 7.2 percent annual growth rate reported for the third quarter. The GDP is the broadest measure of the economy's performance.
For now, investors may be content to sit back and wait, said Richard A. Dickson, senior market strategist, at Lowry's Research Reports in Palm Beach, Fla.
"It could be that we have a few sluggish weeks ahead of us where the market doesn't really make much headway but it doesn't go down either," Dickson said.
"That might be the best of all possible worlds. It would let people catch their breath and look toward fourth-quarter earnings and 2004."
The Dow ended the week up 8.67, or 0.1 percent, finishing at 9,809.79. The S&P 500 rose 2.50, or 0.2 percent, ending the week at 1,053.21.
The Nasdaq gained 38.53, or 2 percent, to close the week at 1,970.74.
The Russell 2000 index, which tracks smaller company stocks, ended the week up 14.74, or 2.8 percent, closing at 542.96.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 10,289.76, up 65.24 from the previous week. A year ago, the index was at 8,438.80.
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