Why Wall Street isn't flying higher

The great stock market rebound of 2002 has so far fizzled – and a major upswing is not yet in sight.

Pundits had expected that, with the US economy moving out of recession, the stock market would follow suit.

Instead, the Dow Jones Industrial Average can't seem to decide whether it wants to go above or below 10000 – a level that was thrilling in 1999 but looks tired today.

The reasons for Wall Street's reticence range from concern about the strength of the economic recovery – punctuated Friday by a jump in the unemployment rate to 6 percent – to newly sober attitudes of investors in the post-Enron market.

While most stock-market strategists still believe the current market is a "bull" and not a "bear," the debate is real and the difference for now is very hard to tell.

Investors are ambivalent. Small players, a key force behind the mid-1990s bull market, are still plowing 401(k) money into stocks. But large institutional investors have parked hundreds of billions of dollars on the sidelines.

And for all investors, the mood has shifted dramatically from the 1996, when Federal Reserve Chairman Alan Greenspan decried "irrational exuberance." The watchword now seems to be more like "rational humility."

"This market is somewhat reminiscent of the stock market of the early to mid 1970s," says Bryan Piskorowski, a vice president and market commentator with investment house Prudential Securities in New York.

Back then, stocks barely eked out gains, with share prices more often tumbling than rising, he says.

Today, rising oil prices haven't yet rippled into broad-based inflation, as happened in the 1970s, but they are holding the stock market back.

The Dow industrials closed at 10006.63 Friday, putting the average down 0.15 percent for the year so far. The technology-laden Nasdaq index has fared even worse, off 17.30 percent.

Despite strong first-quarter economic growth, factors like the ongoing conflict in the Middle East and the possibility of a cutoff in oil supplies are very much on the minds of Wall Street strategists.

"Investors don't just follow the economy," says Hans Stoll, director of the Financial Markets Research Center, at Vanderbilt University, in Nashville, Tenn. "They follow the expected economy," especially relating to the future direction of corporate profits.

"There are real reasons to have concerns about the quality of future US corporate earnings, as well as the sustainability of earnings," Mr. Stoll says.

Not only have energy costs have been climbing. overseas competition is extensive, making it hard for companies to increase product prices.

Page: 1 | 2