Share this story
Close X
Switch to Desktop Site

Stock Market Surge Will Likely Pull Back This Fall, Analysts Say

THE stock market has been on an upward roll. It has been fueled by a slowing economy that should provide growth without risk of additional inflation, solid corporate profits, hefty investment by the public in stock mutual funds, and a perception by investors that the Federal Reserve may not announce another hike in interest rates until at least after the November congressional elections.

The question now is whether the pell-mell rising market will soon abate or continue through September. Historically, September has not been a strong month for stocks. Based on the breadth of the recent market rally, the consensus on Wall Street is that while additional market gains can be anticipated early this fall, a retrenchment also seems likely.

About these ads

``So far, the market expansion has been like the Energizer rabbit,'' says Dennis Jarrett, who heads up technical research for New York investment company Kidder, Peabody & Co. ``It just keeps going and going and going.''

Since late June, the market, as measured by the Dow Jones industrial average, has shot up 7 percent, Mr. Jarrett says. ``The Nasdaq [over-the-counter] market has done even better - it's shot up over 10 percent.'' Even if the market were to show downward momentum, as it did in trading Tuesday, ``I expect the Dow to reach a new all-time high'' sometime in September, Jarrett says.

Still, he says he expects a ``pullback'' [correction] of between 10 percent and 15 percent in October or November. Following that downturn, there will be a resumption in the upward climb of the market, Jarrett reckons.

``Whatever you call this, a `summer rally,' a `late-summer rally,' or the beginning of a `fall rally,' the market has been showing a strong surge,'' says Larry Wachtel, a vice president at Prudential Securities Inc., a New York investment house. ``There's no single reason. There's been a huge inflow of money into stock mutual funds; corporate profits have been strong; mergers are back, including the merger of [defense contractors] Lockheed [Corporation] and Martin Marietta [Corporation] this week; and there's a sense here that the Fed is no longer `in our face,' and that there just may not be any additional hikes in interest rates between now and the election.''

While the market should post advances in September, a correction cannot be ruled out during the next few months, Mr. Wachtel says. Since hitting a high of 3978.36 points on the Dow on Jan. 31, the market wobbled up and down during much of the year - although it mainly headed south. But since the end of June, the market has been recouping its losses.

Last week, the market soared upward for five straight days - its best one-week rise since Feb. 5, 1993, shortly after the Clinton administration took office. Politics was a factor last week, Jarrett says, with investors apparently welcoming action on the crime bill, which finally cleared Congress. But, he notes, many investors may also have welcomed congressional ``inaction'' on health-care reform, since it could have an unsettling impact on health-sector companies. ``We've had a very nice upward move in the third quarter,'' says Gregory Nie of Kemper Securities Inc., an investment company in Chicago. ``But the market is getting into overbought territory'' - a situation that occurs when investors buy stocks just for the sake of climbing into a rising market.

Mr. Nie says investors should be cautious. While most market analysts are talking about a correction in late September or October, it could actually come much earlier, even during the next week or so. ``We may be very close to it,'' given the sharp increases in share prices lately, Nie says.

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.