NEW YORK (The Street) --- A bad U.S. winter is weighing on share market sentiment, skewing economic data so investors struggle to gauge the true strength of the domestic economy.
This means an absence of clear catalysts to push the market higher before spring, fund managers said, pointing to the wind-down of earnings season, a delay of the debt ceiling, and a smooth transition from Ben Bernanke to new Federal Reserve chief Janet Yellen.
The S&P 500 lost more than 5% last month, and even with its February bounce, is still lower for the year. Traders point to weak participation by the Dow Jones Industrial Average in the recent rebound, while small-cap stocks -- a bellwether for risk appetite -- only marginally outperformed the broader market.
More broadly, other indicators of renewed caution include a weakening yen, a softer Aussie dollar and a stronger gold price.
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Now, after a 26% gain for the S&P 500 last year, fund managers said a sustained period of solid economic data will be needed to underpin further gains.
"We'd need to see a bounce-back in the manufacturing ISM to show the last result was an anomaly and if we continue to see M&A activity over the next few months - companies putting money to work -- it could help," Greenwood Capital chief investment officer Walter Todd told TheStreet. The firm manages $950 million in capital.
Todd still thinks the broader market will move higher through the year, based on his estimation of 3% to 3.5% GDP growth and better earnings. The fund manager views the wind-back of stimulus as a positive for the market as it enables investors to focus on company fundamentals rather than macroeconomic decisions.
Capital Advisors investment manager Channing Smith agreed. "It will be interesting over the next few weeks as (the weather factor) fades to see if data has been impacted or if there's a genuine slowdown," he said.
"Earnings have been OK but economic data has been mixed and looks like it will continue to be mixed."
Smith said investors would continue to weigh developments in emerging markets that shook world equities early in the year, along with Chinese growth and political developments in Italy. Capital Advisors oversees $1.3 billion in funds.
Domestically, the fund manager agreed with peers that bad weather represented a "get out of jail free" card for any poor economic data until the return of warmer days.
-- By Jane Searle in New York