Seeking Equilibrium in a Short Trading Week
Wall Street opens this week wondering if Friday’s heavy trading volume in stocks, coinciding with the nearly flat performances of major indexes, suggests the scandal-rocked market has reached some semblance of equilibrium in the near term.
Stocks rallied for much of the session Friday amid soaring volume, as investors made bets, or closed out bets, on the last day of the second quarter. The New York Stock Exchange recorded its fifth-heaviest trading day, as more than 2.1 billion shares changed hands.
The Dow Jones industrial average gave up early gains to close down 26.66 points, or 0.3%, at 9,243.26. The Nasdaq composite, however, added 4.01 points to 1,463.21.
A big chunk of Friday’s volume was tied to the annual “rebalancing” of the Frank Russell Co. stock indexes. Institutional investors who seek to mimic the performance of those indexes were busy buying stocks that were added to the indexes and selling those that were deleted.
The index shuffle aside, some analysts were heartened that the Dow suffered only a fractional loss for the week and that the Nasdaq index gained 1.5% after five straight weekly declines.
Considering the battering that many stocks suffered early in the week on news of WorldCom Inc.’s dramatic earnings restatement, the market’s ability to bounce back was viewed by some analysts as a sign that prices may be bottoming after months of losses.
“Unless we get hit by unforeseen catastrophic news, it will be a week where the market tries to consolidate around present levels,” said Peter Cardillo, strategist for Global Partners Securities in New York.
Investors may begin to look ahead to second-quarter corporate earnings reports. Operating earnings for the blue-chip Standard & Poor’s 500 companies are expected to rise 3% from a year earlier, signaling the start of a profit turnaround from the recession, according to earnings tracker Thomson First Call.
Nonetheless, many investors remain wary about high stock valuations, the threat of more corporate bombshells and the possibility of a new terrorist attack on U.S. soil. And with key market indexes hanging just above the lows reached Sept. 21, any renewed selling could send the market to fresh 3 1/2-year lows.
“We are at a somewhat crucial level,” said Ed Hemmelgarn, president and chief investment officer of Shaker Investments. “But there seems to be movement, some buying. If we can hold at these levels where we were at in September, that’s pretty positive.”
Investors will have fewer trading hours in which to buy or sell this week: The market will be closed July 4 and will be open for half a session Friday, with trading ending at 10 a.m. PDT.
