NEW YORK, Feb 26 — A rally on Wall Street will be put to the test next week, with the S&P 500 at its highest level since before the collapse of Lehman Brothers in 2008.
The broad index is up 8.6 per cent for the year, closing at 1,365 on Friday. The S&P 500’s close was the highest since June 6, 2008, a few months before Lehman Brothers went bankrupt as the global credit crisis spiralled out of control.
While the swiftness and magnitude of the gains have created concerns that the market is due for a pullback, a break above 1,370, which was 2011’s intraday high, could trigger more buying as investors fear missing out on further gains.
“We have reached an exhaustion point and an inflection point,” said James Dailey, portfolio manager at TEAM Asset Strategy Fund in Harrisburg, Pennsylvania. “The sentiment is bullish and the money flow has gotten bullish, and that’s freaking people out a bit.
“What’s more likely, or normal, would be a 5-7 per cent decline (from current levels), but if we move above 1,370, that could be the next leg up.”
The S&P 500 has struggled to climb above 1,370, but the level has thrown up strong resistance in the past week.
Over the week, the Dow Jones industrial average and S&P rose about 0.3 per cent and the Nasdaq Composite added 0.4 per cent to close at its highest since mid-December 2000.
Oil prices will also be in focus after Brent crude futures closed at US$125.47 per barrel on Friday, the highest since last April, on fears of worsening tensions between Iran and the West.
“The S&P and crude oil prices have been showing a correlation so far,” said Ben Schwartz, chief market strategist at Lightspeed Financial in Chicago. “But oil at where it is now is a big deal.”
Schwartz said if oil kept rising, it would threaten consumer confidence and pressure the stock market.
The movement in the euro will also be closely watched for hints about markets’ appetite for risky investments.
The euro on Friday rose to its highest in more than two months against the dollar and hit its strongest versus the yen in nearly four months before the European Central Bank is expected to make available another round of cheap money next week.
The ECB’s three-year, long-term refinancing operation (LTRO) could help the euro’s cause. Estimates suggest that the LTRO would draw bids of anywhere between €500 billion (RM2 trillion) and €1 trillion, setting risk appetite on fire.
Group of 20 leading economies’ finance ministers and central bankers were meeting in Mexico over two days at the weekend.
The meeting would likely be dominated by discussion of the European debt crisis, with euro zone countries pushing for their G20 partners to commit more money to the International Monetary Fund to help victims of the crisis.
Economic data due next week includes durable goods orders on Tuesday and revised fourth-quarter gross domestic product on Wednesday. Weekly jobless claims and ISM manufacturing data will be released on Thursday. — Reuters