9:40 AM
NEW YORK |
NEW YORK (Reuters) - The Standard & Poor's 500 index is poised to hit its highest mark in nearly three years this week after more signs of life from the jobs market, but think twice before betting the house.
Many investors are coming to the view that the U.S. employment situation has turned a corner, but the risks that sent stocks cascading between mid-February and mid-March are as real as ever.
In addition, the surprisingly robust recovery shown in recent economic data has some investors nervous that the Federal Reserve may end its easy money policies before schedule and increase interest rates in the second half of the year.
That could be spell trouble for risk assets such as stocks and commodities that have benefited from the added liquidity provided by the Fed's $600 billion Treasury bond buying. The program, known as quantitative easing, or QE2, is slated to end in June.
"The Fed is now going to much more seriously consider early withdrawal of QE2 because these numbers are getting stronger," said Kenneth Polcari, managing director at Icap Corporates, a floor broker at the NYSE.
One Fed official poured cold water on that idea on Friday, saying he saw no reason to reverse course even as the economy adds jobs. The comments helped cement optimism over the jobs data.
RECOVERING LOSSES
Polcari said the data would provide the fuel to send the S&P 500 to 1,350 this week.
The Dow Jones industrial average hit 12,419.71 -- its highest intraday level going back to June 2008 -- before closing up 56.99 points, or 0.46 percent, at 12,376.72 on Friday. The S&P rose 6.58 points, or 0.50 percent, to 1,332.41. The Nasdaq Composite gained 8.53 points, or 0.31 percent, to 2,789.60.
For the week, the Dow gained 1.3 percent, the S&P added 1.4 percent and the Nasdaq rose 1.7 percent.
The Dow has recovered most of its losses since February as U.S. employment recorded a second straight month of solid gains in March and the jobless rate fell to a two-year low.
The jobs report chimed with the view that the U.S. recovery is becoming self-sustaining.
"The numbers are looking pretty powerful," said Jim Awad, managing director at Zephyr Management New York.
"You have got strong and perhaps accelerating economic growth, you have good profit growth, you have fair valuations, you have momentum, and you have high merger and acquisitions activity."
But uncertainty arising from world trouble spots shows scant sign of abating and is likely to contain stock prices.
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