Sentiment shifts on Wall St.
Though recession concerns remain, major investors are moving back into the market.
NEW YORK - With the start of a new quarter, Wall Street seems to have found something it badly needed: a major shift in sentiment.
Stocks punished during months of sharp losses were scooped up last week as big investors returned to the market. And there is a sense that individual investors might be on the verge of a return as well.
Certainly, worries about the economy have not evaporated. What has changed is the way investors are looking at the market - simply, that stocks are more likely to go up than continue their precipitous declines.
"Sentiment is the whole story, and what we're seeing is an improvement in sentiment," said Alfred Goldman, chief market strategist at Wachovia Securities L.L.C. "I believe the market has bottomed, and eventually all the problems are baked into stocks and we can start looking beyond the valley to the peaks ahead."
He said he believed the best example of this was seen in just the last five days of trading. Tuesday's big rally came on the first day of the second quarter. Then came three days of disappointing economic readings that stoked more fears of a recession, including a surge in jobless-benefits claims and Friday's news that employers slashed 80,000 positions in March.
The data are clear signs that the economy is shrinking, and may well be in a recession. But, unlike previous weeks when the news would have sent the major stock averages skidding, investors barely flinched.
"The selling has been overdone," Goldman said.
Investors, who at heart want to make money and make it as soon as possible, tend to have a short memory when it comes to the reasoning behind a major sell-off. Wall Street quite easily bounced back from market-changing events such as the stock market crash of 1987, the Asian economic crisis in 1997, and the technology industry's bust at the start of the decade.
Perhaps the biggest driver of those recoveries was that investors were just feeling more confident, and began looking for opportunities.
Another sign of the shift in sentiment: the Chicago Board Options Exchange Inc.'s volatility index, often referred to as the "fear index," fell to 23 Friday. The lower the index, the less anxiety there is on the Street, and Friday made it four straight days in which the reading was below 24, a feat not seen since the end of February.