New York market: 'The sky is not falling'

Just when it looked as if US stocks would be in the doldrums all summer, the prognosis changed. The Nasdaq , filled with fast-growing companies like Microsoft and Intel, has gained 9 per cent since 15 June. The Dow Jones is once again trading around 9,000, and the S&P 500 rose to records last week for the first time in more than two months.

Share prices were in retreat just two weeks ago. A slump in the Japanese yen and concern about Asia led some investors to cut back their holdings. That was then. Recent signs that Asia's financial crunch hasn't worsened, plus the steady flow of money into stock mutual funds, have spurred stocks higher. The market's biggest and best-performing stocks also are benefiting from end-of-quarter tinkering by money managers.

"I think the cash flows into mutual funds have fully overwhelmed the funk," said Bob Streed, a money manager with Chicago's Northern Trust. "Now we're in a summer rally that will run into August."

Some money managers said stocks rebounded because they fell too much in the first place. "Nothing is fundamentally different in the world to what it was two weeks ago," said William Quinn, president of AMR Investments. "What you had was some unfounded nervousness, which knocked us down a bit."

In the short term, second-quarter profit reports are key. Results are expected this week from Nike and General Mills. A potential non-event: Tuesday's meeting of the Federal Reserve Open Market Committee, which is expected to leave interest rates unchanged, at least for now.

"Portfolio managers are realising that the sky is not falling," said George Mairs, president of Mairs & Power, a money management firm. "And we got a decent correction, particularly in Nasdaq stocks, so that's what they're buying."

Treasury bonds were the best performers in the US bond market in the first half of the year, and some investors expect that will continue as the economy weakens and interest rates fall. The drop in the 30-year Treasury bond yield to 5.63 per cent currently from 5.92 per cent at the end of last year produced a 7 per cent return. "It's Asia that gave Treasuries the boost that they've had this year," said Bob Kern at Safeco Asset Management in Seattle.

For yields to fall even further, investors said they'd need substantial slowing in the US economy, something many expect as the year progresses.

Copyright: IOS & Bloomberg