NEW YORK, Nov 19: Wall Street built a head of steam over the past week as it moved toward the holiday season, giving many investors reason to be optimistic in what has traditionally a strong period of the year.
Two of Wall Street’s three main indexes rallied to 4-1/2-year highs and some analysts say there is room for more growth because stocks remain relatively undervalued following a long period of market stagnation.
Over the past week, the Dow Jones Industrial Average gained 0.75 percent to 10,766.33, nearly battling back to its starting point on January 1 of 10,783.01.
The broad-market Standard and Poor’s 500 advanced 1.09 percent for the week to 1,248.27 — its best level since June 2001. The tech-heavy Nasdaq has also hit a fresh 4-1/2-year high, rising 1.12 percent for the week to 2,227.07.
The markets have seen four solid weeks and many say it could gain further from seasonal momentum along with a solid economic backdrop.
Overall, the economy is slowing, but to a healthy and sustainable rate, said Al Goldman at AG Edwards.
This should encourage the Federal Reserve board to stop the rate hike cycle by the spring at about 4.5 percent. If investors start to anticipate the Fed stopping rate hikes, the stock market would hold a party. Meanwhile, the seasonal year-end rally remains in place and trading accounts should be or get so positioned, Goldman said.
Douglas Porter, deputy chief economist at BMO Nesbitt Burns, said the US stock market has “woefully underperformed” most other global markets since early 2004, and thus remains relatively inexpensive.
The lacklustre performance of US equities over the past two years, at a time of robust earnings growth, has helped improved valuation metrics markedly, Porter said.
Our equity valuation model, which is a modification of the Fed model, suggests that the S and P 500 is currently undervalued by roughly 25 per cent.
Robert DiClemente at Citigroup said the US economic picture remains solid despite hurricanes Rita and Katrina.
DiClemente added that he sees a revision of the latest economic growth report to a 4.1 per cent pace.
Nolte said the rally is being fueled by an infusion of cash that may not support long-term gains.—AFP
