Uneven Path Higher

Patience is required as the market zigs and zags

By Arnie Kaufman

The recent euphoria over better-than-expected growth in fourth-quarter GDP melted away like spring snow last week. The start of the confessional season preceding first-quarter earnings reports again focused investors on the tepid conditions in some parts of the economy. Warnings of disappointing first-quarter sales by two major telecom equipment makers sent stocks temporarily into retreat.

S&P technical analyst Mark Arbeter is a bit concerned that last week marked the S&P 500's third attempt since the late-September low to climb above 1180. In each case, sellers beat back the rally.

On the plus side, more stocks in the "500" have risen than fallen so far in 2002. Through March 12, a little more than 70% of the issues in the index were up. That's better than the 43% that rose for the full year 2001 and the 54% that advanced in calendar 2000. Unless those numbers change dramatically in the weeks ahead, the improved breadth of the market is an indication that stocks are showing resilience.

Consumers appear willing to do their part. Despite the recession and the disruptions of last September's terrorist attacks, the U.S. consumer has not stopped buying. That trend should continue: The most recent consumer sentiment numbers are the highest since December, 2000.

Nevertheless, investors remain jittery. In the late 1990s, many of them forgot the old Wall Street adage that trees don't grow to the sky. The wrenching bear market brought home the wisdom of that saying. But many nervous investors are starting to think that trees don't grow at all.

We continue to believe that attitude is a mistake. The zigzag action of the market as the economic recovery unfolds in its unruly way may be discomfiting at times, but the economy is growing stronger and stocks will follow corporate profits higher over the course of the year.

Kaufman is editor of Standard & Poor's weekly investing newsletter, The Outlook

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