Sunday, February 20, 2011

Market upswing greeted by indifference

What if they threw a stock-market party and nobody celebrated?

That seems to describe the current climate, in which a robust rally - one of the strongest ever - has been greeted with little fanfare and not much attention.

If anything, distrust and wariness are better descriptions of the public reaction. Perhaps that's not surprising given that plenty of Americans still aren't convinced the recession has ended, what with a persistently high unemployment rate and soft real-estate values. Besides, frayed emotions still haven't entirely mended from the shellacking the market took in 2008 and early 2009.

But you also could argue the current mood is not exactly the reaction one would expect after a surge of 108 percent - the current gain for the broad-based Wilshire 5000 index since it bottomed on March 9, 2009.

The more visible Dow Jones industrial average and Standard & Poor's 500 are up 89 percent and 99 percent, respectively, since then, excluding dividends.

If people are talking hot stock tips around the watercooler, I'm not hearing them.

An ongoing investor-sentiment index compiled by the American Association of Individual Investors has slipped noticeably in recent weeks, although it's showing investors still are generally more bullish than bearish.

Cash flows into stock mutual funds have turned moderately positive in recent weeks, but that's after investors pulled a net $29 billion out of stock funds in 2010 while pumping $246 billion into bond funds.

Even President Barack Obama took a poke at the stock market during his State of the Union address, vowing not to expose Social Security recipients to the "whims" of the market.

This half-empty view of the market also was evident at a recent meeting of the Phoenix Chartered Financial Analyst Society, where guest money-manager commentators split sharply on where prices might be heading.

In the bullish camp, David Goerz, chief investment officer at HighMark Capital Management in San Francisco, said he was optimistic about the economy and stocks going forward.

He cited several economic catalysts that he believes remain in place, from inventory restocking and rising business spending to robust exports and resilient consumer spending.

"American ingenuity and innovation are as strong as they've ever been," he said.

David Tice, former portfolio manager of what is now the Federated Prudent Bear Fund, took an opposite position, predicting sharp drops for stocks and further price gains for gold and other commodities.

The country needs to "clean out the excesses," he said, citing higher government debts as a big worry.

"The market will go down, in our opinion," Tice said.

Komal Sri-Kumar, group managing director at Los Angeles investment firm TCW, took the middle road. He sees strong growth for the economy more than the first half of 2011, due largely to stimulus efforts, to be followed by a slowdown starting around the middle of the year. Sri-Kumar also said he believed political turmoil in Egypt and other Middle Eastern nations could disrupt oil supplies enough to push up gasoline prices and put a damper on global economic growth.

Jason Trennert, chief investment strategist at New York-based Strategas Research Partners, said strong corporate earnings make him bullish for the next year or so.

"I wouldn't be surprised to see new highs for the Standard & Poor's 500," Trennert said.

But he also cited the overhang of rising government deficits and Federal Reserve monetary expansion as long-term concerns.

"Eventually, the bill will come due," he said.

In a comment that nicely captures the current mood on Wall Street, Trennert said he's "dancing until the music stops."

Concerns cited by pessimists aren't easy to dismiss, especially with stock prices no longer in bargain-basement territory. Anytime anything doubles in price over a fairly short span, it should give investors reason to be cautious.

Even so, the muffled yawns that have accompanied this advance are an odd sign, and probably a bullish one, because all this implies a lot of potential buyers haven't moved off the sidelines.

The lack of anything remotely resembling euphoria could mean the rally isn't over yet.

by Russ Wiles The Arizona Republic Feb. 20, 2011 12:00 AM

Market upswing greeted by indifference

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