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Sunday, 16 March 2008

Is Wall Street Close to a Bottom?

By Eileen Aj Connelly, AP Business Writer

The Stock Market Will Remain Volatile, but Some Analysts See Signs That the Bottom May Be Near NEW YORK (AP) -- Investors nursing whiplash symptoms after watching the market's recent wild swings may find that Wall Street will deliver some relief in the coming weeks.

While volatility isn't going to disappear overnight, some experts suggest the market may be near the beginning of a recovery.

"I think we've seen a bottom," said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons Inc., a division of Wachovia. "It's probably not 'the' bottom," he said, "I think it would be presumptuous to call it 'the' bottom."

Some might consider any positive view contrarian, especially given the shock caused Friday by news of a bailout needed by investment bank Bear Stearns Cos., but Goldman said he thinks long-term investors have reason to start expecting some relief ahead.

"I think what we have is a Bear Stearns crisis, not a stock market crisis," he said of the Wall Street bank's liquidity problems, which stemmed from investors, customers and lenders withdrawing their business and pulling back on credit lines. "Right now, I'm not aware of any other major brokerage firms or banks that have this type of solvency problem."

Still, Goldman said, such news can generate further negative feelings. "The level of pessimism, the calls I'm getting, are it's like the end of the Western world."

"The market is very nervous."

Those nerves were reflected in the market's moves this past week, as stocks on Monday sold off for the third straight day, then bounced back Tuesday after the Federal Reserve said it would put up cash to help loosen tight credit market. After a modest decline Wednesday, it got a lift Thursday from Standard & Poor's prediction of an end to massive write-downs of mortgage-backed securities, then dropped sharply Friday following Bear Stearns' revelation.

For the year, the Dow Jones industrial average is down about 10 percent, and off nearly 16 percent since its October high. The S&P 500 index has slipped 12 percent since the start of the year, and about 18 percent since October. The Nasdaq composite index is down about 16 percent for 2007, and off more than 22 percent since its October high -- officially within "bear market" territory.

David Wyss, chief economist for Standard & Poor's said he thinks several factors will likely mean the markets should hit their low point soon. "I think the economy is going to hit bottom in the summer," he said. "Normally, the market leads the economy by about three months," which would put the bottom sometime near the end of March, he suggested.

While there's still plenty in the economy to be worried about, Wyss said, he thinks that signs of a recovery in the market will be helpful in easing investor fears.

"I think people are going to have a little more confidence," he said, adding, however, "It doesn't mean they're going to be back to normal."

The coming week could bring some news that helps. Along with the Federal Reserve meeting that is expected to deliver another big interest rate cut, several major investment banks, including Bear Stearns, are slated to report their first-quarter financial results. Most major corporations will follow starting next month.

Global investment strategist Subodh Kumar expects the earnings reports will produce some difficult numbers, but that could help in the long run.

"I think there's one more leg of earnings reductions that the analysts haven't taken yet," he said. "What I'm anticipating is that as the first-quarter earnings are reported, (analysts) will cut their second quarter estimates and that will help us find a bottom."

"In terms of the market drop, I think most of that has already been done," he said. "In terms of expectations, in terms of earnings, I think there's more to come."

Brett Hammond, chief investment strategist at TIAA-CREF Asset Management, agreed that first-quarter results are not likely to be pretty. "Overall, I think we can expect some fairly negative news on the corporate front," he said, noting that, among other factors, financial companies are probably not done writing down the value of certain holdings.

He also said the credit crisis must also play itself out before market turns.

"The story over the last quarter or so is the 'sound of credit crunching' can be heard everywhere, and I think that's what driving both reality and perception," he said. "You have to talk about both reality and perception when you're talking about turn."

Still, Hammond said, while it might take a few more quarters before the markets show signs of real strength, "the chances of there being a much further downturn from here are less than there's going to be an upturn."


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