NEW YORK-Stock investors head into next week with added worries about the sustainability of the recent rally and a desire to reduce risk, as shown by the stampede out of commodities on Thursday. Stocks also will begin to lose the support they've enjoyed from stronger-than-expected earnings since the first-quarter reporting period is almost at an end. The drop in commodities this week spilled over into commodity-related stocks, which were among the top performers in the last two quarters. The Standard & Poor's energy index ended the week down seven per cent, its biggest weekly drop in a year, and the iShares Silver Trust suffered its worst week of outflows ever after heavy losses in the precious metal.
While the commodities rout may be done for now, it has left many investors worried about the ramifications.
"It's hard to pinpoint the time when the bubble bursts and hard to go against the current, but when it bursts it's precipitous usually," said Natalie Trunow, senior vice president and chief investment officer of equities at Calvert Asset Management Company in Bethesda, Maryland, which manages about $14.8 billion in assets and is underweight energy. With first-quarter earnings and also the Federal Reserve's QE2 purchasing program coming to an end, the stock market could be vulnerable to some weakness in the short term, she said. "I wouldn't be surprised if we had a somewhat softer summer or somewhat softer next couple of months," said Trunow, who said she is still positive on the US market longer-term.
The S&P 500 suffered its worst week since March, even with yesterday's surprisingly strong jobs report that allowed the index to end a four-day losing streak. It is now just above critical support at 1,330. A close below that level could "turn the intermediate-term picture bearish," according to a note from Larry McMillan, president of McMillan Analysis Corp. Sentiment still upbeat Despite this week's skittishness, sentiment for the market is positive longer term, and technical indicators do not suggest the market is overbought.
"Our view is still unchanged; we still like the market," said Jeff Rubin, market strategist at Birinyi Associates in Westport, Connecticut. Much of the fundamental picture remains bullish for stocks, said Hank Smith, chief investment officer at Haverford Trust Co in Philadelphia. "The economy and valuations remain attractive," he said. "We remain bullish, but with any bull market, it's healthy to have pullbacks." (Reuters)