Will Wall Street's Rally Last?
The Dow Jones industrials and Standard & Poor's 500 index have had their best week in years. And many on Wall Street are beginning to wonder whether they could reach an all-time high.
As the closing bell rang this week, the Dow was nearly 11,300. It hasn't been at these kind of levels since the height of the internet boom in January of 2000, when it hit 11,722. But after the tech bubble burst and the Sept. 11 attacks rattled the markets, the Dow was down near 7000 less than two years later, reports CBS News correspondent Anthony Mason, who stopped by the floor of the New York Stock Exchange today.
"It has been a long climb back and it hasn't been without some heartache," Ken Polcari, an NYSE trader tells Mason. Polcari said the stock exchange rally is sending a message. "The market's telling you that the economy's OK. The interest rate environment is OK. The long term investor, people investing for their retirements, for their kids educations — this is where you need to be."
Mason reports that with real estate prices cooling, some investors are looking to put their money back into the market. Retail broker Charles Schwab, for example, took in more than $10 billion in new money in February — nearly 70 percent more than a year ago.
Many on Wall Street are beginning to wonder whether this rally has the fortitude to
Why the rally now? Investors have been seeing evidence of low inflation and moderate economic growth — the right recipe for the Federal Reserve to stop raising interest rates, and for corporate America to continue increasing profits. As a result, the Dow gained 1.84 percent; the S&P rose 2 percent and the Nasdaq composite index jumped 1.96 percent for the week.
Investors have shown a strong bias toward buying stocks right now, believing that, at least for the short-term, there's room to go even higher. However, investors in this current market are quick to sell off if there's any kind of signal that the balance between inflation, economic growth and the Fed is off-kilter.
Certainly, caution will take over at some point, especially with the Fed meeting March 28. As the meeting draws closer, some investors will certainly want to collect profits after this week's rally. The Fed is widely expected to raise interest rates by a quarter percentage point, but there's always a chance policy-makers could express concerns about the economy, or signal more rate hikes down the road.
How much the market drops, however, is anybody's guess. The investor sentiment seen this week was strong and pervasive, and it's hard to discount that positive bias in the week ahead.
Economic Data
Nonetheless, the week's meager slate of economic reports contain two items that could move the markets. On Tuesday, the Labor Department releases February's producer price index, which measures price increases on the wholesale and industrial level. PPI was expected to fall 0.2 percent for February, far better than the 0.3 percent hike in wholesale prices in January.
So-called core PPI, with food and fuel prices removed due to their volatility, was expected to rise a modest 0.2 percent in February, down from 0.4 percent the previous month. If the PPI figures are lower than expected, the rally could gain fresh momentum. If not, the market bulls will have a hard time charging through it.
On Friday, the Commerce Department releases its report on orders for durable goods, big-ticket manufactured items designed to last at least three years. For February, durable goods orders were expected to rise 1 percent after a 9.9 percent drop in January. In this case, investors might like a lower-than-expected number, which would illustrate a slowing economy that would make it harder for the Fed to raise rates.
Earnings
The start of first-quarter earnings season is weeks away, but there are a handful of notable companies reporting results in the week ahead.
With Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Bear Stearns Cos. all reporting record first-quarter revenue and profits this past week, investors will be looking to Morgan Stanley for a clean sweep. A record quarter would put to rest concerns that Chief Executive John Mack is taking too long to turn around the venerable Wall Street institution.
Morgan Stanley is expected to earn $1.25 per share for the quarter, up from $1.19 per share a year ago, when it reports Wednesday morning. The company's stock is up 26.4 percent from its 52-week low of $47.66 on May 13, 2005, closing Friday at $60.26.
Results from Oracle Corp. Monday afternoon could set the tone for the technology sector next week. Oracle is expected to earn 18 cents per share, up from 16 cents a year ago. Shares of Oracle have spent most of the past year vacillating between $12 and $14 per share, but are up 20.9 percent from their 52-week low of $11.25 on April 29, 2005, closing Friday at $13.60.
Events
Never underestimate the ability of a Fed chairman to move the markets. New Fed chief Ben Bernanke is expected to address the Economic Club of New York on Monday. The club consists of some of the best minds on Wall Street, and they'll be asking tough questions. Any hint from Bernanke of continuing rate hikes would likely trigger rapid profit-taking — but positive word on the economy could also keep the current rally alive.