Stocks Make Halting Advance

Risk Aversion Comes Home to Roost

In addition to concerns about earnings growth, some sector-driven action has given rise to concerns about the market's prospects for 2005. CitiGroup Smith Barney analyst Ajay Kapur issued an upgrade on consumer staples, along with a downgrade on information technology, citing a growing aversion to risk in the markets.

"U.S. tech capacity is increasing, but new growth is faltering [and] pricing could be an issue," Kapur wrote in a recent research note. He noted that exposure to the food, beverage and tobacco space could be beneficial as "risk-love and growth slow."

Despite improving economic data, the markets appear uneasy about growth estimates for 2005 as the government's economic and fiscal stimulus gets further and further away in the rearview mirror.

"To me, this has been a very manipulated market," Ritholtz said. "Look at all the levers that have been pulled by the government to stimulate growth. The Fed increased the money supply, there were several rounds of tax cuts, the dollar has declined, and there were massive amounts of military spending and deficit spending. I don't know what other levers are left for them to pull, which makes this so dangerous going into the back half of 2005."

Ritholtz predicts more jerky swings one way or the other for the foreseeable future as the market continues to find the footing for an extended period of growth. Meanwhile, John Bollinger, president of Bollinger Capital Management, is in wait-and-see mode for a market that he sees as having room to run.

"The market has gone too far in the wrong direction," said John Bollinger, president of Bollinger Capital Management. "We've left some considerable pent-up demand at these levels."

On Tuesday, the pent-up demand to own stocks held sway, but demand to sell stocks made its presence known late in the session once again.