Market ends 4-day slide

more bumps expected

Tired bull: Analysts predict fitful progress by Wall Street, but nothing like last year's run.

March 13, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

Worries about jobs, terrorism and overvalued stocks are taking the steam out of a powerful yearlong market rally, and analysts say investors are likely to find this year less satisfying than the last.

The market will continue to advance, they say, but in fits and starts as investors contemplate weighty domestic and global issues as well as the presidential election.

"The market ending up [for] the year is a pretty fair bet, but big gains we don't see," said Michael Barron, chief executive of Knott Capital Management, a West Chester, Pa.-based investment advisory firm. "It won't be too long before the market starts to look into next year."

But yesterday, the market shook off a four-day slide and major indexes rose across-the-board.

The Dow jumped 111.70 points to 10,240.08, up 1.1 percent, but closed the week down 3.4 percent.

The Standard & Poor's 500 stock index rose 13.79 points to 1,120.57, a gain of 1.2 percent. It was down 3.1 percent for the week. And the Nasdaq composite index, which is dominated by large technology companies, climbed 40.84 points to 1,984.73, or 2.1 percent. It slipped 3.1 percent for the week.

The market was battered for several reasons, one being its own success. Investors, experts said, sold stocks that had gains to take home the profits.

The rally over the past year has been a powerful one, with the Dow, S&P 500 and the Nasdaq rising 36 percent, 40 percent and 56 percent, respectively.

"It has had a spectacular run up," said John R. Boo, director of Nasdaq trading at Ferris, Baker Watts Inc. in Baltimore. "It is no surprise to see a round of profit taking."

The week's sell-off was swift but orderly, analysts said. By Thursday's close, the Dow had lost 467 points, or 4.4 percent of its value.

"Some of the intraday swings have been huge," Boo said. "We saw some pretty motivated selling a couple of days this week, especially coming into the closes."

Jobs and the health of the economy also buffeted the market and will continue to affect it in the months to come, experts said. Nearly every day, President Bush and Sen. John Kerry, the presumptive Democratic candidate, sparred over jobs and the economy's health.

Bush has repeatedly said jobs are being created, but the most closely watched figures from the Labor Department aren't supporting his claims. Last month, only 21,000 jobs were added to an economy that is by all accounts growing briskly. Economists have been projecting for months that the economy would create at least 150,000 jobs a month by now, enough to absorb the number of people coming into the labor force.

Limited upside

"Our concerns about the employment picture really, for us, cause concerns about the upside of this market," Barron said. "The lack of consistent and positive job creation, we think, limits the upside in the short term from here."

If jobs are not created soon, consumer confidence could be shaken, and Bush's re-election bid could be in jeopardy, Barron said. "His re-election would be highly questionable," Barron said.

James Thorne, senior portfolio manager at M&T Bank in Baltimore, said he recently attended two investment conferences and the mood of many money managers was dour.

They are worried about the job market and companies outsourcing work to China and India, he said.

"There is an apocalyptic view out there ... that the United States will not be able to recover from what is happening with outsourcing and China," Thorne said. "I was just shaking my head."

He believes that now is the time for investors to take a look at bargains, especially technology companies. "There is too much pessimism for it to be the top of the market," Thorne said.

Terrorism also pushed down the market this week and continues to pose a threat, experts said.

News on Thursday that 10 bombs exploded in Madrid, Spain, sent the market spiraling after al-Qaida, the terrorist organization, claimed responsibility. Terrorism "isn't going to help things," Boo said. "It certainly is a psychological negative."

Kevin R. Caron, market strategist at Ryan Beck & Co. in Livingston, N.J., said money managers have "adjusted their risk attitudes to think about the implications of terrorism, and market valuations have been adjusted to reflect a new reality that we are living in."

`Is this rational?'

Thorne said the market's tone changed in late January when the Federal Reserve Board slightly altered its opinion on interest rates, indicating that the historically low rates would not stay there. Shortly after the Fed announcement, the Labor Department reported a weaker-than-expected jobs report.

"Everybody started selling the market because we are not going to have any job growth and the economy is going to pot and we have outsourcing in China," Thorne said. "Is this rational? No. Is it healthy for the market? Yes. When you have a good bull run you need to have a correction."

Most experts see the market continuing to rise, but not coming close to last year's 25 percent gain on the Dow. As of the close of trading yesterday, the Dow is down about 2 percent for the year. The economy, they say, has a lot going for it with interest rates at record lows, strong corporate earnings and low inflation.

"We are still positive on the market," said Caron, of Ryan Beck. "We think the market can move higher from here."

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