NEW YORK — As U.S. stocks capped a sixth consecutive week of gains Friday — the longest winning streak in nearly two years — market watchers considered how much room remains for the rally.
“The debate has shifted from is this a bear-market rally or something more substantial to questions of how much higher do we go in this current move, and I think we have substantial room to the upside,” said Art Hogan, chief market strategist at Jefferies & Co.
Hogan said he believes the current path of least resistance is to the upside, offering three reasons for his bullish take:
• After a second week of results, “it’s clear we underestimated corporate America’s ability to have earned money in the first quarter,” Hogan said.
• “It’s important to realize a majority of the early part of the rally has been short covering, and we’re just now seeing a modicum of money coming into the market,” he said.
• “There is a lot of buying power sitting on the sidelines, waiting for investment vehicles other than cash,” said Hogan, pointing to recently released data showing $3.8 trillion sitting in money-market funds, illustrating pent-up demand for equities.
Nick Kalivas, an analyst at MF Global Research, offered his own list of reasons to be bullish, part of which echoes Hogan’s rundown:
• The Dow Transport Index has broken above the 3,000 level. “The sector is a leading indicator of economic growth and may be responding to the outlook for improved activity and inventory replenishment,” said Kalivas.
• The flow of financial news has been running at or ahead of depressed expectations, said Kalivas, who pointed to “benign results” from J.P.Morgan & Chase Co. and “favorable guidance” from Regions Financial Corp.
In addition, credit-card issuers “failed to shake the market with delinquency data,” while the bankruptcy of General Growth Properties Inc. seems to have gone unnoticed, “which may suggest that the market is positioned for poor news in the commercial-real-estate sector,” he said.
On Friday, stocks seesawed between gains and losses, with consumer discretionary shares leading the gains and telecommunication services pacing the declines.
The Dow Jones industrial average rose 5.9 points, or 0.1 percent, to end at 8,131.33, its highest close since Feb. 9. The blue-chip index tallied a weekly gain of 0.6 percent. The S&P 500 Index added 4.3 points, or 0.5 percent, to 869.60, a 1.5 percent rise from the previous week’s finish. The technology-laden Nasdaq Composite climbed 2.63 points, or 0.2 percent, to end at 1,673.07, up 1.2 percent for the week.
“Investors, sensing that the recession may be nearing a point of inflection, are optimistically thinking it may not be worsening,” said Frederick Dickson, chief market strategist of Davidson Cos.
