Stocks are nearly 70 percent higher than when they hit their trough this time last year, and the street is as divided as ever about whether the rally will endure.
One clear consensus, though, is that any market advance will be more discriminating, and it will be more important to pick individual stocks and sectors that could outperform the stock market as a whole.
In the week ahead, there are a few important economic reports, including February's retail sales and of course, weekly jobless claims. Greece and sovereign debt issues stay center stage as Greek Prime Minister George Papandreou visits Washington early in the week, and investors continue to watch to see what steps European governments will be willing to take to help Greece with its debt situation. Another big event will be the Treasury's auction of more than $200 billion in t-bills, notes and bonds this week.
The Dow ended the past week up 2.3 percent at 10,566, while the S&P 500 rose 3 percent to 1138. The market saw its strongest move of the week on Friday, after the February employment report showed the loss of 36,000 payrolls, better than Wall Street's downgraded expectations.
The Dow and S & P both moved into positive territory for the year this past week, and are now about 1 percent away from their mid-January highs. The Nasdaq, up nearly 4 percent to 2326 this past week, is now at an 18-month high.
The S&P 500 has rebounded 68.3 percent from its March low, while the Dow is up 61.4 percent. The Nasdaq and Russell 2000 scored the biggest gains, up 83.4 percent and 94 percent, respectively. Meanwhile, the CBOE's Vix, viewed as a fear indicator, is down 65 percent in the same period.
"There's a lot of people who think we've come too far too fast, arguably 70 percent off our lows is a lot" said Art Hogan, managing director at Jefferies. "I think that argument fails in the harsh light of reality. Those levels that we were at March 9 really represented a credible possibility that a lot of companies were going to go out of business. We were putting in bankruptcy valuations for a lot of stocks." Some of those stocks were in the financial sector, which rebounded 144 percent since last March. Bank of America, for instance, is 345 percent higher than a year ago.
Both bulls and bears point to the fiscal and monetary stimulus being applied by Washington as a key factor behind the market's run. But where they split is on how well the economy is recovering and whether it can avoid swooning in a "double dip."
"The important thing to think about is this is a market now that a year later has basically been stuck for 60 or 80 days in the same position. We're literally where we started the year...We've spent three months in the same place...I think that's okay that we're passing some time at certain level, but what's happening is there's a real tug of war," Hogan said.
The battle is between investors who believe stronger earnings can drive stocks higher and "those people who think we've come too far too fast, believe we could have a double dip and those that are worked up about things outside the United States, like the risk from sovereign debt," he said.
Bill Stone, PNC Wealth Management chief investment strategist, said he is basically bullish but says the market is vulnerable to a 10 percent or so correction, now that it's gone for a year without one.
"We're at about the time, where you have a 10 percent pull back. it's just a fact of life. You run into soft numbers...I'm surprised we didn't get a pull back with some of these weak numbers. You got a pass because of the weather," he said. Economists have blamed the unusually heavy east coast snow falls for disruptions in some economic reports this month, including housing, consumer confidence, and jobs data.
"Our base line forecast is that things are getting better. That's going to support higher earnings. Higher earnings should support higher prices. It'll make for easy comparisons. We're looping around some numbers that make just about anything you made look really good," said Stone. "Does it cause people to take some profits because they say, 'Holy moly! I'm up 67-68 percent!' That's possible."
"I think earnings should come through strong, which should support an uptrend in the market longer term. To us that's important, we're not short term traders. We think at some point, we're going to get a short term pullback, but for us that's an opportunity," he said. Stone said he is overweight in tech, up 83 percent since last March; consumer discretionary, up 98 percent, and industrials, up 95 percent.
His biggest concern is the jobs picture, but he was encouraged by Friday's February employment report, which economists say could set the stage for a positive jobs number in March. "It's telling you encouraging things.. Everything hinges on the global economic recovery...The most important part of the puzzle in the mix is jobs," he said. He added that February chain stores' sales were also encouraging, as they beat forecasts overall when reported Thursday.
Hogan said he sees the market heading higher for now, but he sees a correction coming, possibly later in the year. "I think it's not going to be a straight line. There's going to be other things we don't know about. Nobody knew about sovereign debt. Nobody knew the term PIIGS a couple months ago," he said.
"There's going to be states that are in trouble and municipalities, and that will cause some concern and we'll have to get our arms around it. We've got our own sovereign debt-like issues," he said. These issues will become more clear in the summer when some of these entities start to show signs of running out of money.
"They either get support form the federal government or they raise taxes. It's also the point in time where we'll see if the economy could be self-sustaining, and that's the other big concern," he said.
Stone said the recent surge in corporate mergers is a good sign for stocks and a sign that corporate managers are more comfortable with their business prospects. "More important is the fact that they're willing to come out of their shells a little bit. It shows some of the risk aversion is receding to a point that is good," he said. Announced mergers in the U.S. totaled $106 billion in February, the highest monthly level since July, 2008, according to Thomson Reuters.
GREEK DRAMA
Greek Drama
The dollar index finished the week at 80.45, up 0.1 percent for the week, and up 3.3 percent year-to-date.
Brown Brothers Harriman chief currency strategist Marc Chandler said now that Greece successfully floated bonds in the past week, the euro could be under less pressure short term and the dollar may see some selling. "I'm thinking we're due for a correction. I think the euro is ready to sustain an up tick," he said. Chandler said towards the end of the coming week, worries about Greece could resurface as investors await the country's March 16 report on its fiscal situation.
"I'd say the big thing next week is Chinese data. It's the whole series—trade, new loans, CPI. I think toward the end of the week what we're going to be watching is whether the Greek bond offering went well enough that they can do another one," he said.
Energy and metals prices ended the week higher, with some help form China. Premier Wen Jiabao said his country is on track for 8 percent growth this year, encouraging traders that China will not pull back too quickly on stimulus. Oil finished the week up 2.3 percent at $81.50 per barrel, while copper finished 4 percent higher at $3.4175 a pound.
Econorama
Besides Friday's retail sales report, data this week includes the NFIB small business survey Tuesday. Wholesale trade for January is Wednesday, and international trade is reported Thursday. Weekly jobless claims are reported Thursday. Consumer sentiment and business inventories are reported Friday.
Fed speakers include Brian Sack, an executive vice president of the New York Fed. He speaks at the National Association of Business Economists meeting Monday in Arlington, Va. Chicago Fed President Charles Evans speaks at the NABE meeting Tuesdays. New York Fed President William Dudley speaks to economists in London Thursday.
Cambridge Energy Research holds its annual international energy conference in Houston this week.
Earnings Next Week
Retailers continue to report earnings in the week ahead. J. Crew, Dick's Sporting Goods and Kroger report Tuesday. American Eagle Outfitters , Gymboree, Mens Wearhouse and Jo Ann Stores report Wednesday. Pacific Sunwear, Quicksilver, and Rite Aid report Thursday, and Ann Taylor reports Friday.
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