RPT-Wall St Week Ahead: Strong start to 2013 could be tested

Sun Feb 10, 2013 11:38am EST
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By Leah Schnurr

NEW YORK Feb 10 (Reuters) - The U.S. stock market is no stranger to strong performances in January, only to see the lofty gains early in the year transition into months of grinding action that goes nowhere.

That's what happened in 2011 and 2012, and some analysts think 2013 could follow the same routine. Markets are higher this year in the face of Washington's debates over fiscal policy, but a looming deadline on spending reductions could test the gains.

"This is almost a carbon copy of last year," said Alan Lancz, president of Alan B. Lancz & Associates Inc in Toledo, Ohio.

The mentality is "ride the wave as far as you can and try not to be the last one off," Lancz said.

Major indexes recently crossed psychologically important milestones - 1,500 for the S&P 500 and 14,000 for the Dow industrials. The S&P is at its highest level in five years, while the Nasdaq finished on Friday at its highest close since November 2000, the tail end of the Internet bubble.

The current levels are more significant than Wall Street's usual fixation on round numbers. This is only the second time the Dow has reached 14,000, and the third time the S&P has hit 1,500.

That could leave the market churning as investors test whether there is enough support to reach new highs, or if a pullback is needed. The sharp gains and overall bullishness on Wall Street leave stocks vulnerable to sudden shocks, such as a flare-up of the financial crisis in the euro zone, which momentarily sidetracked the market last week.   Continued...