Why US stock market stays skittish

The US stock market seems unable to shake itself out of the doldrums, despite signs of an economic rebound. Last week it tumbled again.

Ironically, some valuation models – such as one used by investment house Prudential Securities, Inc. – suggest large-company stocks may now be slightly undervalued and, as such, better buys.

"But valuation levels don't seem to matter now," says Larry Wachtel, a market commentator for Prudential. "You just can't get away from the drumbeat of bad news," mainly from abroad.

Investors are spooked by talk of war between India and Pakistan, flareups in the Israeli-Palestinian conflict, and the war on terrorism, Mr. Wachtel says. Another worry: a sliding US dollar, which raises concerns that overseas investors will flee the US market. Finally, add disillusionment over the Enron and securities-analyst scandals.

Might the proverbial "summer rally" yet occur? Experts point to two windows of opportunity for stocks in the coming months:

1. Early July, when second-quarter corporate earnings reports start coming out. If they look good, some folks may start buying again.

2. After Labor Day, when investors return from vacations feeling more relaxed.