IE 11 is not supported. For an optimal experience visit our site on another browser.

Market’s rally has likely fizzled out for now

The stock market has lost some of its swagger, and it seems unlikely to regain it anytime soon.
/ Source: The Associated Press

The stock market has lost some of its swagger, and it seems unlikely to regain it anytime soon.

A six-month rally that sent Wall Street's major indexes up more than 45 percent from their March lows has hit the wall. While months ago investors welcomed even modest signs that the economy had slowed its decline, now traders won't settle for anything less than signs of actual growth before they'll buy stocks with any enthusiasm again.

"There's no catalyst to push the market higher right now," said Brett D'Arcy, chief investment officer at CBIZ Wealth Management Group in San Diego. "You can only be less bad for so long before you need to be good."

The holiday-shortened week in the U.S. — the market is closed Monday for the Labor Day holiday — brings few major economic indicators that could revive the rally.

The biggest reports will likely be the Federal Reserve's beige book report, which tracks economic activity by region, and the University of Michigan's preliminary report on consumer sentiment during September.

However, those reports are not considered as important as monthly jobs data, which came out Friday, or retail sales and consumer spending reports.

An improvement in employment and consumer spending is needed for a full recovery but there's no sign yet of that happening, said Mike Rubino, CEO of Rubino Financial Group in Troy, Michigan.

"We think numbers can get worse," Rubino said about job losses. "We're still going to leak jobs."

On Friday, the Labor Department said the unemployment rate rose to a higher-than-expected 9.7 percent in August from 9.4 percent in July. There was some upbeat news in the report: U.S. employers cut fewer jobs than anticipated, shedding 216,000 positions during the month.

Stocks rallied in light pre-holiday trading after the report was released, with the Dow Jones industrials rising almost 97 points. But that blip up wasn't enough to offset a big drop earlier in the week that came on resurgent worries about the economy and fears that investors had been too optimistic in bidding stocks up this spring and summer.

The Dow and Standard & Poor's 500 indexes fell more than 1 percent last week, while the Nasdaq composite index slipped 0.5 percent.

The concern across financial markets is that consumers, even if they have jobs, will continue to curb their spending out of fear that they'll be laid off. And they're not likely to spend with any vigor until they see a more stable job market.

"We definitely need to see jobs improve to see consumers spend," said Ingrid Hendershot, president of Hendershot Investments in Bristow, Va. "With unemployment continuing to rise, a recovery will be anemic."

Enough cash remains on the sidelines and investors' tolerance for risk has returned enough that any major drop in the market is likely to be met with buying, especially since investors do believe a recovery is coming. It's just that no one is expecting much strength when the rebound finally occurs.