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SCMP Reporter

The prevailing sentiment in Wall Street is that the Dow Jones Industrial Average is likely to stay in a fairly tight trading range around 9,000 points for the foreseeable future.

 This is despite the strong conclusion to last week's trading that drove the Dow up 167.15 points to 9,037.71, its second largest point gain of the year.

 Both the Dow and S&P 500 gains reflect a growing trend toward blue chips at the expense of small caps.

 Coca-Cola ended on Friday at a record high, Proctor & Gamble and Pfizer made strong gains, while Wal-Mart and Walgreen also topped previous highs.

 Friday's rally followed the announcement of the latest employment figures that revealed 296,000 jobs had been generated during May, holding unemployment at a 28-year low of 4.3 per cent.

 But New York Stock Exchange volumes were a moderate 556 million shares and traders said there was little, apart from the employment figures, to account for the surge in values.

 There is little enthusiasm among analysts and traders at present for earlier predictions that the Dow was on an unstoppable march to 10,000 points.

 Credit Suisse First Boston chief investment strategist Christine Callies said: 'There is a small chance it might hit 10,000 in the second half but quite a few things must happen first.

 'The market has to be convinced that interest rates can go down indefinitely with economic growth and labour demand.

 'I doubt whether that will happen with the economy growing about 3 to 3.5 per cent. The market has priced that performance. It can't have its cake and eat it too.'  Ms Callies said the economy was being powered by internal consumption. The Asian crisis was stimulating the economy as it kept a lid on interest rates.

 Friday's robust employment figures did little to assist a potential break-out.

 Goldman Sachs' Abby Joseph Cohen is one of the few who believe stock prices have been in a consolidation phase since April and are ready to rise again.

 Those who consider the market is set to linger in its current range are awaiting the posting next month of second-quarter profits for a clearer direction.

 Earnings in the S&P 500 are expected to rise about 5.4 per cent for the second quarter compared with 3.7 per cent in the first.

 Merrill Lynch chief economist Bruce Steinberg said: 'We expect a modest pick-up in earnings during the balance of the year.

 'But first quarter performance underlines the downside risks to earnings this year.'  But before a clear picture emerges on profits growth markets could still be shaken by a new round of disastrous economic news from Asia, an interest rate rise or reports about pending earnings.

 Technical analysts appear to back the broad sentiment that the Dow will trade around the 9,000-point mark.

 Prudential Securities chief technical analyst Ralph Acampora said: 'We are widening our trading range for the Dow with 8,700 on the down side and 9,250 on the up side.

 'We expect to eventually see the cycle of a secular bull market begin again, crash spectacularly and bring favour back to the blue chips. The correction is not over.' 



Dow Jones to loiter near 9,000