Solid week a sign of sentiment shift
NEW YORK – With the start of a new quarter, Wall Street seems to have found something it badly needed: a major shift in sentiment.
Stocks punished during months of sharp losses were scooped up this past week as big investors like hedge funds returned to the market. And there’s a sense that individual investors – who yanked their money from the stock market out of fear – might be on the verge of a comeback as well.
Certainly, worries about the economy and further calamities striking investment banks haven’t evaporated. What has changed is the way investors are looking at the market – simply, that stocks are more likely to go up than continue their precipitous declines – and that allowed the stocks to hold on to most of their gains this past week.
After the Dow Jones industrials rose 391 points on Tuesday alone, the stock market’s best-known indicator ended the week up 393 points.
“Sentiment is the whole story, and what we’re seeing is an improvement in sentiment,” said Alfred Goldman, chief market strategist at Wachovia Securities. “I believe the market has bottomed, and eventually all the problems are baked into stocks and we can start looking beyond the valley to the peaks ahead.”
He believes the best example of this was seen in the just the past five trading days. Tuesday’s big rally came on the first day of the second quarter. Then came three days of disappointing economic readings that stoked more fears of a recession, including a surge in jobless benefits claims and Friday’s news that employers slashed 80,000 positions in March.
Investors, who want to make money and make it as soon as they can, tend to have a short memory when it comes to the reasons behind a major sell-off. Wall Street quite easily bounced back from market-changing events such as the stock market crash of 1987, the Asian economic crisis in 1997, and the technology industry’s bust at the start of the decade.
Perhaps the biggest driver of those recoveries was that investors were just feeling more confident, and began looking for opportunities.
Billionaire investor Warren Buffett might have had it right when he told shareholders a few years ago: “If they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.”
Analysts believe the performance of financial companies – widely believed to be the group that leads markets higher – will be a key to whether investors can hold on to their optimism. Their billions of dollars in write-downs from failed mortgages fed Wall Street’s decline.
Stephen Massocca, of Pacific Growth Equities, a San Francisco-based investment bank, said a clue to market direction could come as the nation’s biggest financial companies begin to report earnings later this month – and provide outlooks for the rest of the year. That starts April 16, when JPMorgan reports first-quarter results, followed by Merrill Lynch & Co. the following day and Citigroup Inc. the next.
“Further collapse of the market could depend on them,” Massocca said.