Fed Chairman Alan Greenspan stepped in front of the Senate Banking Committee Thursday and gave a talk that eased more than a few minds on Wall Street.
Sure, some of the things he said in his semiannual
testimony were cautionary, but the gist of the speech was balanced, acknowledging that the economy has begun to slow, while holding out the possibility that further rate hikes may yet be necessary. That was manna for investors who had been fearing the chairman's outlook would be more dour -- like last July when his comments sent stocks spiraling lower.
So, off to the races, right?
Not everyone is so sure of that. Stocks tend to top out in late July and early August. The Fed chairman may have just helped things along a bit last year. Some technicians believe the market will adhere to that pattern again this year.
"As far as we can tell, the seasonality is pretty much right on schedule," says John Bollinger, president of
EquityTrader.com. "This is the time that the market goes from an uptrend to a flat trend in preparation for the fall lows."
When it comes to things like seasonality in stock prices, it sometimes seems that there are more exceptions to the rule than the rule itself. But, for the past three years, stocks have made some highs midsummer that they didn't recapture until late in the fall.
"I do get a kick out of everyone thinking of the summer rally as being the beginning of something longer and more lasting," says Robert Dickey, managing director of technical analysis at
Dain Rauscher Wessels
. "I think that would be the scenario if we could make the case for lower rates. That isn't going to happen."
Both Dickey and Bollinger reckon that stocks still have some more upside -- Bollinger, who manages some money, says he hasn't sold yet -- and that the time to sell is fast approaching.
You would have been hard-pressed to find such concerns among investors Thursday, when the
S&P 500 hopped 0.9% and the tech-stuffed
Nasdaq Composite added a whopping 3.2%, but that cheery attitude is actually part of the point.
Since the big selloff in the spring, investor optimism has been steadily rising and is now back to its March level, according to
Ned Davis Research's
senior equity strategist Tim Hayes, who follows a number of sentiment indicators. And such a rise in bullish sentiment was actually an aspect of late summer selloffs in 1998 and 1999.
Such an excess of optimism, says Hayes, makes stocks vulnerable. The thought is that there is very little good news left in stocks, and very few people left who haven't bought into the market. It also means that any bad news -- a big earnings miss, a too-strong economic report -- could have a particularly nasty effect.
"I think the market is ready for a selloff," says Hayes. "I don't see it going much farther."