| NEW YORK, March 7
NEW YORK, March 7 Friday's
stronger-than-expected payrolls report did more than ease
concerns about U.S. economic fundamentals - it also seemed to
justify Wall Street's record levels, suggesting the market's
uptrend could continue.
February's jobs report followed two straight months of
payroll reports that were sharply below expectations, and the
rebound reinforced the theory that the weakness in December and
January had been temporary, related to weather as opposed to
That bet has helped equities shrug off bearish data and
geopolitical uncertainties in Ukraine, taking the S&P 500 to a
series of record highs. However, it also raised concerns that
the market may be vulnerable to pullbacks on any indication that
conditions have gotten worse.
"We're hoping the payroll report means we're on a stronger
footing going ahead and that we can get more robust growth going
forward," said Michael Mullaney, chief investment officer of
Fiduciary Trust Co in Boston. "Now we're trading on
fundamentals, which we think are fine. We're comfortable still
being long on the market."
In a sign of positive trading momentum, the S&P 500 is 1.3
percent above its 14-day moving average, a level that could
serve as support in a market decline.
In the latest week, the Dow rose 0.8 percent, the S&P 500
climbed 1 percent and the Nasdaq gained 0.7 percent. While the
Dow and the S&P 500 rose for their second straight week of
gains, the Nasdaq advanced for a fifth straight week, up 5.7
percent over that period.
On Friday, the S&P 500 ended at a record high of 1,878.04.
The milestone marked its fifth record closing high in the past
Wall Street has marched steadily higher this year, save for
a pullback in late January that came on concerns about emerging
markets. Those worries will remain prominent after Russian
President Vladimir Putin rebuffed a warning from U.S. President
Barack Obama over Moscow's military intervention in Ukraine's
Crimea region. Obama has ordered sanctions against Russia in the
most serious confrontation since the Cold War.
"Weekends are notorious for geopolitical developments, so we
might be vulnerable to some kind of shock," said Terry DuFrene,
investment specialist at JPMorgan Private Bank in New Orleans,
which has $977 billion in assets under management.
Macro issues may have a large influence on trading next
week, with little else that could serve as catalysts. Only two
S&P 500 components, Urban Outfitters and Dollar General
, are scheduled to report quarterly results. Economic
indicators on tap include February retail sales, seen rising 0.2
percent, and a preliminary read on March consumer sentiment from
the Thomson Reuters/University of Michigan Surveys of Consumers,
which is expected to hold flat from February.
While any development in Ukraine could overshadow the data,
the conflict is not expected to drastically change the market's
"We're not as susceptible to a disruption from that part of
the globe as we would be to a flare-up in the Middle East,"
DuFrene said. "That gives us some breathing room, and though
there will be fears of contagion, the market should be able to
continue taking things in stride."
FAVORING LARGE-CAP STOCKS
Equities in total may be hard-pressed to post dramatic gains
from record levels, but analysts see opportunity in specific
areas of the market.
Fiduciary Trust's Mullaney, who oversees about $11.3 billion
in assets, said he was overweight large-cap stocks and
underweight small-caps, which outperformed the S&P 500 for the
past two years, as well as so far in 2014.
"While multinationals with a lot of emerging market exposure
could be hit by developments in Ukraine, we don't think the pain
will be that outsized, compared to other parts of the market,
and in the meantime, small-caps are not favored by their
The forward price-to-earnings ratio of the small-cap S&P 600
is 20.1, while the Russell 2000's, which includes
more small names, is 24.5. To compare, the S&P 100,
which has a higher concentration of large-cap names, has a P/E
ratio of 14.3, while the benchmark S&P 500's is 15.8.
Morgan Stanley analysts wrote that it had been "dismissive"
of the idea that emerging market contagion would impact U.S.
equities, "as what really matters is that the dream of growth is
still alive," with corporate earnings not slowing.
"In this environment," the firm added in a note to clients,
"stock pickers would benefit from exposure to technology as its
historical alpha ranks first over all other sectors."
Sunday will mark the five-year anniversary of the closing
low that the S&P 500 reached during the financial crisis. The
benchmark index has soared almost 180 percent from that level.
(Wall St Week Ahead runs every Friday. Questions or comments
on this column can be emailed to: