By Leah Schnurr
NEW YORK, March 3 If Wall Street needs to climb
a wall of worry, it will have plenty of opportunity this week.
Major U.S. stock indexes will make another attempt at
reaching all-time records, but the fitful pace that has
dominated trading is likely to continue. Friday's unemployment
report and the hefty spending cuts that have officially taken
effect will be at the forefront.
The importance of whether equities can reach and sustain
those highs is more than Wall Street's usual fixation on numbers
with psychological significance. Breaking through to uncharted
territory is seen as a test of investors' faith in the rally.
"It's very significant," said Bucky Hellwig, senior vice
president at BB&T Wealth Management in Birmingham, Alabama.
"The thinking is, 'There's just not enough there for an
extended bull run,'" he said. "If we do break through (record
highs), then maybe the charts and price action are telling us
there's something better ahead."
Flare-ups in the euro zone's sovereign debt crisis and
Friday's report on the U.S. labor market could jostle the
market, though U.S. job indicators have generally been trending
in a positive direction.
Small- and mid-cap stocks hit lifetime highs in February.
Now the Dow Jones industrial average and the S&P 500
are racing each other to the top. The Dow, made up of 30
stocks, is about 75 points - less than 1 percent - away from its
record close of 14,164.53, which it hit on Oct. 9, 2007. The
broader S&P 500 is still 3 percent away from its record closing
high of 1,565.15, also reached on Oct. 9, 2007.
The advantage may be in the Dow's court. So far in 2013, it
has gained 7.5 percent, beating the S&P 500 by about 1 percent.
THE RALLY AND THE REALITY CHECK
The Dow's relative strength owes much to its unique make-up
and calculation, as well as to investors' recent preference for
buying value stocks likely to generate steady reliable gains,
rather than growth stocks.
But the more defensive stance illustrates how stock buyers
are getting concerned about this year's rally. While investors
don't want to miss out on gains, they are picking up companies
that are less likely to decline as much as high-flying names -
if a market correction comes.
The Russell Value Index is up 7.6 percent for the
year so far, outpacing the Russell Growth Index's 5.7
percent rise. Within the realm of the S&P 500, the consumer
staples sector led the market in February, gaining 3.1 percent.
There is some concern that growth-oriented names are being
eclipsed by defensive bets, said Ryan Detrick, senior technical
strategist at Schaeffer's Investment Research in Cincinnati.
"This isn't a be-all and end-all sell signal by any means,
but we would feel much more comfortable if some of the more
aggressive areas, like technology and small caps, would start to
gain some leadership here," Detrick said.
Signs that investors are becoming concerned about the
rally's pace is evident in the options market, where the ratio
of put activity to call activity has recently shifted in favor
of puts, which represent expectations for a stock to fall.
"We are seeing some put hedging in the financials, building
up for the past month," said Henry Schwartz, president of
options analytics firm Trade Alert in New York.
The put-to-call ratio representing an aggregate of about 562
financial stocks is 1:1, when normally, calls should be
Investors have no shortage of reasons to crave the relative
safety of blue chips and defensive stocks. Although markets have
mostly looked past uncertainty over Washington's plans to cut
the deficit, fiscal policy negotiations still pose a risk to
The $85 billion in spending cuts that will start to come
into effect are expected to slow economic growth this year if
policymakers do not reach a new deal. Markets so far have held
firm despite the wrangling in Washington, but tangible economic
effects could pinch stock prices going forward.
The International Monetary Fund warned that full
implementation of the cuts would probably take at least 0.5
percentage point off U.S. growth this year.
EASY MONEY AND TEPID HIRING
In his annual shareholder letter, Warren Buffett said he was
still hunting for acquisitions, which could support equities,
though he warned Berkshire Hathaway may end a long
streak of outperforming the S&P 500 this year.
Buffett did not say what sort of companies he would like to
acquire, except to note that one thing he will buy more of are
Buffett's investments are widely followed and his annual
shareholder letter is closely read.
Investors will also take in a round of economic data this
week at a time when concerns are percolating that the market is
being pushed up less by fundamentals and more by loose monetary
policy around the world.
The main economic event will be Friday's non-farm payrolls
report for February. The U.S. economy is expected to have added
160,000 jobs last month, only a tad higher than in January, in a
sign the labor market is healing at a slow pace. The U.S.
unemployment rate is forecast to hold steady at 7.9 percent.
While lackluster data has been a catalyst in the past for
stock market gains as investors bet it would ensure continued
stimulus from the Federal Reserve, that sentiment may be wearing
Markets stumbled last week following worries that the Fed
might wind down its quantitative easing program sooner than
"It shows the underpinning of the market is being driven at
this point by monetary policy," Hellwig said.
With investors questioning what is behind the rally, it will
make a run to record highs even more significant, Hellwig added.
"There's smart people that are in the bull camp and the bear
camp and the muddle-through camp," Hellwig said. "The fact that
you can statistically, using historical evidence, make a case
for going higher, lower, or staying the same makes this number
very important this time around."
(Wall St Week Ahead runs every Sunday. Comments or questions
on this column can be emailed to: