Tags: stock | s&P | rally

Wall Street's Rally May Be Put to the Test This Week

Sunday, 26 February 2012 03:27 PM

A rally on Wall Street will be put to the test this week, with the S&P 500 at its highest level since before the collapse of Lehman Brothers in 2008.

The broad index is up 8.6 percent for the year, closing at 1,365 on Friday. The S&P 500's close was the highest since June 6, 2008, a few months before Lehman Brothers went bankrupt as the global credit crisis spiraled out of control.

While the swiftness and magnitude of the gains have created concerns that the market is due for a pullback, a break above 1,370, which was 2011's intraday high, could trigger more buying as investors fear missing out on further gains.

"We have reached an exhaustion point and an inflection point. The sentiment is bullish and the money flow has gotten bullish, and that's freaking people out a bit," said James Dailey, portfolio manager at TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

"What's more likely, or normal, would be a 5-7 percent decline (from current levels), but if we move above 1,370, that could be the next leg up."

The S&P 500 has struggled to climb above 1,370, but the level has thrown up strong resistance in the past week.

Last week, the Dow Jones industrial average and S&P rose about 0.3 percent and the Nasdaq Composite added 0.4 percent to close at its highest since mid-December 2000.

Oil prices will also be in focus after Brent crude futures closed at $125.47 per barrel on Friday, the highest since last April, on fears of worsening tensions between Iran and the West.

"The S&P and crude oil prices have been showing a correlation so far. But oil at where it is now is a big deal," said Ben Schwartz, chief market strategist at Lightspeed Financial in Chicago.

Schwartz explained that if oil keeps rising, it will threaten consumer confidence and pressure the stock market.

The movement in the euro will also be closely watched for hints about markets' appetite for risky investments.

The euro on Friday rose to its highest in more than two months against the dollar and hit its strongest versus the yen in nearly four months before the European Central Bank is expected to make available another round of cheap money next week.

The ECB's three-year, long-term refinancing operation (LTRO) could help the euro's cause. Estimates suggest that the LTRO would draw bids of anywhere between 500 billion and 1 trillion euros, setting risk appetite on fire.

Economic data due this week include durable goods orders on Tuesday and revised fourth-quarter gross domestic product on Wednesday. Weekly jobless claims and ISM manufacturing data will be released on Thursday.

© 2018 Thomson/Reuters. All rights reserved.

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Sunday, 26 February 2012 03:27 PM
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