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May 08, 2003 at 08:00 PM
May 7, 2003 — It may not be back to the races, but a successful conclusion to the war with Iraq has apparently left U.S. stock funds feeling fairly good.
So far this year, the main domestic equity fund categories are comfortably in solid territory, with April results looking especially strong. “In April, most investors saw the Iraqi war was over quicker than they thought, so the war won’t have a negative impact on the economy,” said Sam Stovall, chief investment strategist at Standard & Poor’s.
After the war ended, investors realized that earnings were pretty healthy, and the economy was improving, Stovall noted. In the April post-war rebound, value stocks led over growth stocks, which was unexpected, he added, since growth stocks tends to outperform after a bear market is over. He thinks these unlikely results may stem from the unusual nature of the recent bear market, which was longer, and deeper, than most downturns.
Going forward, Stovall expects more traditional market patterns to emerge, with small-cap growth stocks leading, as investors look to an expanding economy, and improving earnings. Growth funds have been outperforming so far this year through April, but larger caps have generally held up better than small caps. Larger-cap companies may be benefiting from the weaker dollar, since larger companies tend to be bigger exporters. Concerned about volatility, investors may also be favoring more relatively stable large-cap companies.
While it’s “possible” that recent market gains are a bear market rally, Stovall believes stocks are poised for “the beginning of a new bull market.” He notes that Standard & Poor’s investment policy committee expects the S&P 500 to reach 985 by year end, which would be a 13% rise for this year overall.
