MarksJarvis: Dow dips, but big downturn isn't expected

After strong rally, investors may have decided to take a breather

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Ten isn't the charm.

The Dow Jones industrial average set records for eight days and rallied 10 days, but on Friday the market lost it, declining 25 points to 14,514. Analysts attributed some of the downturn to a slide in consumer confidence to 71.8 from February's 77.6. The analysts' conclusion: Investors were taken aback because professional investors hadn't expected consumers to be feeling so apprehensive about the present or future.

But you have to wonder about such a conclusion. Economists have been saying since January that consumers wouldn't respond well when they realized that higher payroll taxes were going to keep taking 2 percent more out of their paychecks. A 2 percent tax increase stings middle-income people, who live paycheck to paycheck. And the sting is worse when gasoline prices rise 9 percent, as they have lately. In response, stocks ranging from Wal-Mart to Home Depot sold off Friday

Yet, a 25-point decline in the Dow after one of the strongest rallies since 1996 isn't huge, and analysts are not predicting a major downturn. What probably was eating investors more on Friday was the realization that the stock market doesn't typically set new records day after day. So they decided to take a breather.

The market has had a stunning climb. The Wilshire 5000, which includes large and small company stocks, climbed 0.61 percent last week and 10 percent in just the first 50 days of 2013. It enriched investors by $1.8 trillion. The last time the Wilshire 5000 climbed 10 percent in 50 days or less was in 1998.

So the rally seems remarkable, although it may still be disappointing to the individual who remembers Oct. 9, 2007, or the peak in the market prior to the financial crisis market crash. Although the Wilshire 5000 has gained 140 percent since the worst point in the crash on March 9, 2009, and restored $11.6 trillion to investors since then, investors aren't far ahead of October 2007. After all the losses and gains since then, the market is only 4.38 percent above where it was prior to the financial crisis. That's $875 billion in stock market gains.

Yet, the U.S. has been a favorite among investors worldwide this year. Only the Swiss and Swedish stock markets have surpassed the U.S. in dollar terms, said JPMorgan analyst Nikolaos Panigirtzoglou.

Investors have poured money into U.S. stock exchange-traded funds the past two weeks, "while those into emerging-market equity ETFs declined and those into developed markets (such as Europe) have flattened," he said.

In the past week, investors put $9.4 billion into U.S. stock exchange-traded funds, with a cumulative $14 billion over the past two weeks. While that's impressive, analysts still do not see signs that individual investors are dumping their bond funds to move money into stocks. Investors are holding on to bonds while adding stock funds.

"Foreign buying of U.S. stocks is a recent phenomenon," Panigirtzoglou said.

Of course, investors continue to keep an eye on the Federal Reserve for any indication that stimulus might be ratcheted back and cause stocks to plunge and bonds to lose value. So watch the Federal Reserve meeting this week and the Fed's press conference Wednesday for any hint that might unnerve investors.

gmarksjarvis@tribune.com

Twitter @gailmarksjarvis

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