The stock market is on a hot streak, and technology issues are leading the charge.
Of course, investors have heard that come-on before, and for the past two and a half years it has been to their peril to believe that any rebound -- especially in the technology sector -- would be more than transitory.
That's why suspicions are running high with Wall Street again in recovery mode, even though some market bulls say their reasons for optimism are as solid as they've been in a long time.
The Dow Jones industrial average closed out Friday up for the seventh straight week, the longest winning streak since 1998. The tech-dominated NASDAQ composite index ended at 1,468.74 on Friday, its highest close since June 19.
Since reaching five-year lows in early October, the Dow is up 20.8 percent, to 8,804.84, and the NASDAQ index is up 31.8 percent.
The last rally of this magnitude occurred in the fourth quarter of 2001, as the market rebounded from the selloff that followed the Sept. 11 terrorist attacks.
Then, as now, battered tech stocks led the way. In fact, the advance among the tech sector's biggest names is on an eerily similar pace: The NASDAQ 100 index, which comprises the most prominent NASDAQ tech firms, has risen 38.7 percent from its October low. A year ago at this time the index was up 40 percent from its post-attacks low.
Last year's fourth-quarter rally lasted until the first week of January. The market then struggled through the winter before plunging anew in spring and summer amid a wave of corporate financial scandals.
Someone who one year ago bought the so-called "QQQ" fund, which replicates the NASDAQ 100 index, still is down 31 percent despite the rally of recent weeks.
No wonder many investors are suspicious.
"There appears to be a fairly common assumption among market followers that the rebound in prices since the lows of October is merely a 'bear-market rally,"' said Richard McCabe, chief market analyst at Merrill Lynch & Co. in New York.
Small investors seem particularly wary. Despite the heady gains of the major market indexes since early October, stock mutual funds have taken in relatively little in new cash in the past four weeks, according to AMG Data Services, which tracks fund cash flows.
Indeed, in the week ended Wednesday, investors pulled a net $2 billion out of stock funds, AMG estimated.
A high level of skepticism can be a good thing for Wall Street: It often means there still is plenty of money on the sidelines, waiting to be lured into a continuing rally.
Other trends also point to a relaxation of the fear level in the market. Yields on corporate "junk" bonds have tumbled as some investors have rushed back into those securities. The yield on an index of 100 junk issues tracked by KDP Investment Advisors fell to 10.53 percent on Friday, the lowest since early June and down from a peak of 12.34 percent in mid-October. (As the yield of a bond falls, its price rises.)
Investors' renewed interest in junk bonds suggests growing faith that the economy will continue to improve in 2003, and thus that there is less risk of debt-heavy companies being unable to pay their bills.
"We find very compelling fundamentals now" in the junk market, said Jack Ablin, chief investment officer at Harris Trust in Chicago.
But junk bonds also are a favorite playground of market timers -- investors who are looking for no more than a short-term trade (or, in other words, a bear-market rally). Credit-rating firm Moody's Investors Service, in a report Friday, said that despite the recent slide in junk bond yields, "investors are still in a state of high anxiety regarding their attitude towards credit risk."
For stocks and junk bonds, a central question is whether the economy will be OK in 2003.
Big investors who have been putting cash to work in stocks say that even if the economic outlook remains murky, the market's mood has rightly improved since early October. "The market was priced for Armageddon, and that's just not the scenario," Ablin said.
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