A year after the stock market began its comeback from 12-year lows, investors are still cautious.
Stocks have lost some of the momentum that propelled the Dow Jones industrial average up 61.4 percent from its close of 6,547 on March 9, 2009. That's natural -- bull markets tend to slow down as they head into their second year. But the lethargic pace of the economic recovery has also been a bit of a drag on stocks. And so investors are waiting for signs that the economy is ready to put up some solid, sustainable growth numbers.
The most likely trigger: job growth. Investors need to see a Labor Department report that says employers are creating more jobs than they are cutting.
Until then, analysts say that the market is likely to move sideways or drift higher, as it has been doing over the past few weeks. Yesterday's trading fit the pattern of modest moves. The Dow rose nearly 12 points to close at to 10,564.38. The average is up 1.3 percent so far this year.
But that doesn't mean that the market isn't going to have its fitful moments. And it certainly has volatile industries that are expected to move the rest of the market. Yesterday, the financial companies that led stocks higher in the past year again drove trading. Analysts said that financial shares rallied as investors reacted to rumors that the government might prohibit the trades known as short sales in stocks of companies it owns. The government has large stakes in Citigroup Inc., American International Group Inc. and mortgage companies Fannie Mae and Freddie Mac after bailing them out during the 2008 financial crisis.
The market began its ascent last March 10 after Citigroup Inc., the big bank most wounded by the credit crisis and recession, said it had turned a profit. Signs that the housing market was starting to turn around added to the momentum.
At the time, such news, which amounted to glimmers of hope, were enough for investors. With stock prices so much higher now, they want proof.
"A lot of the gains we already enjoyed have been in anticipation of economic progress which has not yet occurred," said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors.
Besides jobs, investors need to see more strength in the housing market. Traders have been tolerant of recent declines in home sales, but if those numbers don't pick up, the market is likely to become uneasy.
First-quarter earnings reports that will be issued next month need to show continued sales growth. Companies' results for the last three months of 2009 were better than expected. Now the market wants to know that demand, starting with consumers, is rising.
Adam Gould, a senior portfolio manager at Direxion Funds in New York, said he will be looking for at least two months of back-to-back gains in job growth and for the unemployment rate to fall below 9 percent to feel more comfortable about the pace of recovery. Unemployment stands at 9.7 percent.
Even if the news improves, just holding the gains of the last year could be tough. Some of the market's big gains in past years were followed by slumps. In the first year of the 1982-87 bull market, the Standard & Poor's 500 index jumped 58 percent. In the second year, the index fell 14.4 percent.
That doesn't mean that is what will happen this time. In 2003, the S&P 500 index rose 26.4 percent. Then, in 2004, it peaked early and fizzled, until a 10.7 percent surge late in the year lifted stocks.
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