Stock market going up. Sign of better times ahead?
Since March 2009, the Standard & Poor's average has rebounded 76 percent, and the stock market could be getting ready for more gains in the months ahead.
On Wednesday, investors pushed the market averages to five month highs. During the same period, the Dow Jones Industrial Average has been up 69 percent.
Richard Drew/AP
New York
Can a buoyant Wall Street start to make Main Street feel better about the economy?
Well, the market is trying.
On Wednesday, investors pushed the market averages to five month highs: The Standard & Poor鈥檚 500 index closed at 1178.10 鈥� up 8.33 points, or 0.71 percent, for the day. Since March 2009, the S&P average has rebounded 76 percent.
During the same period, the Dow Jones Industrial Average has been up 69 percent, closing Wednesday at 11096, up almost 76 points for the day.
鈥淲e are definitely in a bull market,鈥� says Sam Stovall, chief investment strategist at Standard & Poor鈥檚 Equity Research in New York. 鈥淥ur definition of a bull market is a 20 percent advance off a bear-market bottom that lasts at least six months.鈥�
Even more important, Mr. Stovall says, the stock market could be getting ready for more gains in the months ahead. In the third year of presidential terms, the S&P has gained an average of 17 percent and has risen in 19 out of 20 cycles, he notes.
鈥淭he stock market could be rising in anticipation of a favorable third year,鈥� he says.
However, almost all those gains in other presidencies took place because investors were expecting Washington to spend more money to stimulate the economy before the next election, says Jeffrey Kleintop, chief market strategist at LPL Financial in Boston.
鈥淭his time, we鈥檙e seeing a contraction of the stimulus,鈥� he says. 鈥淪tate and local governments are cutting; the Feds are cutting.鈥�
For that reason, Mr. Kleintop says he expects the market to rise, but only by the high single digits next year. 鈥淪o much is dependent on the Federal Reserve keeping interest rates down next year, and that will be a tough challenge,鈥� he says.
For now, though, the market has been focused on some shorter-term signs 鈥� specifically, companies鈥� earnings reports. On Tuesday, Intel, the computer chipmaker, said profit jumped 59 percent. And on Wednesday, JPMorgan Chase reported better-than-expected earnings.
At the same time, reported the Mortgage Bankers Association, many consumers got off the fence and rushed to their banks to refinance their mortgages.
鈥淚t was pretty much a good-news day,鈥� says Robert Brusca of Fact & Opinion Economics in New York. 鈥淲e even had Chilean miners getting rescued, which made everyone feel good. There has been too much bad spin on everything.鈥�
While the news might be good for large companies like Intel, small businesses are still struggling, says Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla.
鈥淯ltimately, we need the small firms for expansion,鈥� Mr. Brown says.
What has been driving the market higher, Brown believes, is anticipation of the Federal Reserve鈥檚 next step in monetary easing: The nation鈥檚 central bank may begin to buy long-term Treasury notes. By buying these notes, the Fed hopes to lower longer-term interest rates. It has already dropped short-term rates to almost zero.
On Friday in Boston, Fed Chairman Ben Bernanke will deliver a speech on monetary policy in a low-inflation environment. 鈥淲e may get some color on what this monetary easing is going to look like,鈥� Brown says.
On Wednesday, the prospect of the Fed lowering long-term rates helped drive up the stocks of material producers, energy companies, and industrial stocks, Kleintop says.
鈥淧eople are buying these stocks in anticipation of the Fed reinflating the economy,鈥� he says.