THE WALL STREET WEEK AHEAD
A RALLY on Wall Street will be put to the test this week, with the S&P 500 at its highest level since before the collapse of Lehman Brothers in 2008.
The broad index is up 8.6 per cent for the year, closing at 1,365 on Friday. The S&P 500’s close was the highest since June 6, 2008, a few months before Lehman Brothers went bankrupt as the global credit crisis hit.
While the swiftness and magnitude of the gains have created concerns that the market is due for a pullback, a break above 1,370, which was 2011’s intraday high, could trigger more buying as investors fear missing out on further gains.
“We reached an exhaustion point and an inflection point. The sentiment is bullish and the money flow has gotten bullish, and that’s freaking people out a bit,” said James Dailey, of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.
“What’s more likely, or normal, would be a 5 to 7 per cent decline (from current levels), but if we move above 1,370, that could be the next leg up.”
The S&P 500 has struggled to climb above 1,370, but the level has thrown up strong resistance.
Last week, the Dow Jones industrial average and S&P rose about 0.3 per cent and the Nasdaq Composite added 0.4 per cent to close at its highest since mid-December 2000.
Oil prices will also be in focus after Brent crude futures closed at $125.47 per barrel on Friday, the highest since last April, on fears of worsening tensions between Iran and the West.
The movement in the euro will also be closely watched for hints about markets’ appetite for risk. On Friday it rose to its highest in more than two months against the dollar and hit its strongest versus the yen in nearly four months. The European Central Bank is expected to make available another round of cheap money this week.