NEW YORK -- A three-day weekend couldn't have come at a better time for Wall Street professionals.
On the surface, the market looked fairly healthy, recovering a substantial portion of the previous week's crushing losses. A broad range of stocks rose, from blue-chips to beaten-down technology shares.
But volatility reigned, and market analysts couldn't shake a persistent fear that the bear that loomed over Wall Street in early April hadn't yet gone into hibernation. The market had survived two precipitous dips, but few analysts were ruling out the possibility of a third.
''Essentially, we've seen bear markets and bull markets two days apart,'' said Barry Hyman, senior equity analyst at Ehrenkrantz King Nussbaum. ''People are very confused.''
Hyman, along with many Wall Street analysts, cautioned that the factors that drove the Nasdaq composite index and the Dow Jones industrial average dramatically lower the week of April 10 remain in place. Interest rates are rising, signs of inflation have popped up in the buoyant economy and many stocks remain very expensive relative to their expected stream of earnings.
What's more, argues Ned Riley, chief investment strategist at State Street Global Advisors in Boston, the market never really completed the four stages that he believes are necessary in a full-blown correction.
''All week long, people have been asking me whether we're in the initial stage of a correction, or is it already over?'' he said. ''In my judgment, we have been in a correction for quite some time -- longer than two weeks, certainly -- and it's not over.''
In Riley's view, every significant stock market correction has begun with a period of exuberance, with investors driving stocks higher and pouring more money in on the belief that the ride up won't end.
''We had reached maniacal levels of exuberance,'' he said. ''And that drove a lot of stocks to prices they did not really deserve.''
The second phase, Riley said, is indifference.
''Last year, as the economy continued to percolate along, the market just ignored signs of inflation, and the not-so-subtle tightening of monetary policy,'' he said. ''There was complete indifference to a mounting pile of negative news.''
In early April, Riley said, the third phase kicked in: fear. On April 4, both the Nasdaq and the Dow recorded their widest point swings in history. At various points in early afternoon, the Nasdaq fell 574.57 points and the Dow tumbled 504.15. Analysts invoked the word ''panic'' for the first time since 1998, and brokerages began a round of margin calls to collect money from clients who had borrowed funds to buy more stocks during the market's headiest days.
The problem, Riley said, was that the fear didn't last.
''If you took a long lunch that day, you missed it,'' he said. Investors took the steep drop as a cue to buy more stocks, putting a halt to the climactic selling that usually drives a market to a true ''bottom.''
As many analysts predicted, the market did have farther to fall. The week of April 10 brought the worst carnage, with the Dow losing a record 805.71 points and the Nasdaq plummeting a record 1,125.16 points and losing a record 25 percent of its value.
But by the following Monday, buyers were stepping back in, if cautiously. Gains this past week may have prevented the market from reaching the final stage of a true correction, Riley said.
''And that's capitulation,'' he said. ''If exuberance is when investors see no ceiling, capitulation is when they see no floor,'' and leave the market en masse.
Analysts pointed out that investors found fundamentally sound reasons to buy this past week. Strong corporate earnings provided the biggest catalyst. Also, the economic calendar was too quiet to reignite fears of inflation.
Yet just as analysts tiptoed around the notion of a bear market last week, few were ready to describe the current market in truly bullish terms.
''For now, both the bull and the bear have gone away and hidden,'' Riley said.
This past week, all major stock indexes posted strong gains. The Dow Jones industrials rose 538.28 points to close the week at 10,844.05. On Thursday, the blue-chip index rose 169.09.
The Nasdaq composite rose 322.59 points for the week. A loss of 62.53 on Thursday left the index at 3,643.88.
The Standard & Poor's 500 gained 77.98 points during the week, rising 7.07 on Thursday to close at 1,434.54.
The Russell 2000 index of smaller companies rose 28.11 on the week. The index slipped 4.39 on Thursday, finishing the week at 481.84.
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