As a testament to the market's resilience, stocks ended higher this week despite the crash of a commercial jetliner, some ambiguous economic data and news of an impending oil price war.
Still, after eight weeks of gains, some analysts say the market may be due for a timeout.
"Since September, this market has performed very well and it's hard to take it down," said Jay Suskind, head of institutional equity trading at Ryan Beck & Co. "Stocks are saying that this economy is going to rebound in 2002."
Dow Jones Industrial Average ended the week up 2.6% to 9866, while the
Nasdaq rose 3.8% to 1898. The
S&P 500 climbed 1.6% to 1138.
News that a commercial aircraft had crashed just outside John F. Kennedy International Airport in New York got the week off to a nervous start, as fears of terrorism ripped through the financial markets. But as details emerged that the crash was probably the result of an accident rather than sabotage, stocks rallied. The airline sector, which plummeted on Monday, rebounded over the last four days and actually ended the week up almost 17%.
The energy sector wasn't as lucky. Oil prices plunged over $4 a barrel this week after OPEC said it would cut production by 1.5 million barrels a day, but only on the condition that non-OPEC countries cut their own output by 500,000 barrels. With Russia seemingly unwilling to cooperate, OPEC has said prices could drop to as low as $10 a barrel. That news sent the Amex oil index down 8% on the week.
"It's a big negative for oil stocks but a big positive for the consumer because it acts as a tax break," said Al Goldman, chief market analyst at AG Edwards. "That's good for growth."
So far though, investors are seeing few signs of a genuine turnaround in the economy. Retail sales, reported on Wednesday, surged 7.1% in October and were still up 1% excluding autos. But investors know that the surge in retail sales came about because of heavy incentives, which aren't sustainable and will crimp profit margins going forward. News that jobless claims fell in the latest week may have given investors a reason to be optimistic, but a report out Friday, showing the 13th consecutive monthly drop in industrial production, was a stark reminder that the economy is far from being out of the woods.
"The economic news has been relatively mixed but people feel stocks have priced in disaster and are too cheap to sell," said Brian Pears, head of equity trading at Victory Capital Management.
Pears also noted that the progress made on the war front this week may have added to the positive tone. On Tuesday, investors embraced news that Taliban military forces were abandoning the Afghan capital of Kabul. Later in the week, the Pentagon reported that U.S. airstrikes had killed some senior leaders of the al-Qaeda terror network and the Taliban. Still, nerves were once again frayed Friday when Atlanta's Hartsfield International Airport was closed after a man ran through a security checkpoint. All flights were temporarily suspended and the airport was evacuated.
"The market's been acting great for eight weeks and that's part of the problem," Goldman said. Indeed, the Dow has climbed almost 20% from its lows on Sept. 21 while the Nasdaq is up 33% in the same space.
Goldman is looking for a pullback of about 3% or 4% on the major averages but said individual stocks, some of which have seen gains of 30% or 40% over the past few weeks, are more vulnerable.
Robert Dickey, chief technical analyst at Dain Rauscher, agreed that with the major averages approaching resistence levels, the market will "likely slow." The levels of 10,200 on the Dow Industrials and 2000 on the Nasdaq are the "heaviest and most significant resistance areas," he said. "Getting through these levels would be very bullish, but it will likely take time and some pulling back before it's accomplished."
Dickey is looking for a correction on the order of 5% to 10%, which would still leave the market well off its lows and perhaps in a healthier position to move forward.
"We're not going to give back half of the rally because people aren't reacting to news anymore, they're responding to momentum," added Pears. "Barring something really unpredictable, we'll probably just move sideways."
Considering the way stocks have withstood the latest round of unnerving news, Wall Street's predictions could be a lot worse than that.