Technical impediments are also present. S&P technical analyst Mark Arbeter says any further rally would likely encounter fairly heavy resistance at 1100 on the S&P 500, which ended last week at 1070, and at 1670-1700 on Nasdaq, which finished at 1605. How that selling is handled will be a major determinant of the market's near-term direction. Another key will be whether investor skepticism persists. Arbeter feels the chances for sustaining an advance would be better if a rise was broadly viewed as merely another rally in a bear market.
Despite the many negatives, it's quite possible that the bottom of the bear market was seen on September 21. The October 1998 low was tested successfully on that day, and the market since then has absorbed earnings warnings and profit taking in an impressive manner.
A low on September 21 would fit with the historical pattern of a market trough arriving roughly at the mid-point of a recession, using S&P economist David Wyss's forecast that the current recession will be dated from around April 2001 to February 2002.
Despite increasing doubts about the ability of monetary policy to turn the economy around, Wyss believes the Fed's efforts will bear fruit. He maintains that benefits of a series of easing moves start to appear in a general way about a year after the first rate reduction, which in this case was last January. The terrorist attacks could upset that timetable, though the Fed responded forcefully to that risk with two quick half-point rate cuts. Also, it appears that sizable additional fiscal stimulus will be forthcoming.
We believe the market six months from now will be well above the current level. Kaufman is editor of Standard & Poor's weekly investing newsletter, The Outlook