Stock investors ask: What's the next big thing?

AP Business Writer

NEW YORK (AP) - A year after the stock market began its comeback from 12-year lows, investors are looking for the next big thing.

Stocks have lost some of the momentum that propelled the Dow Jones industrials up 61 percent from 6,547, its close on March 9, 2009. That's natural - bull markets tend to slow down as they head into their second year. But the economic recovery has also been a bit of a drag on stocks. And so investors are waiting for signs that the economy is ready to put up some solid, sustainable growth numbers.

The most likely trigger: job growth. Investors need to see a Labor Department report that says employers are creating more jobs than they're cutting.

Until then, analysts say the market is likely to move sideways or drift higher, as it's been doing over the past few weeks. Tuesday'strading fit that pattern. The Dow rose 50 points, a respectable but still modest advance compared to the surge over the past 12 months. The average is up 1.2 percent so far this year.

The market began its ascent last March 10 after Citigroup Inc., the big bank most badly wounded by the credit crisis and the recession, said it had turned a profit. Signs that the housing market was starting to turn around added to the momentum.

At the time, such news, which amounted to glimmers of hope, were enough for investors. With stock prices so much higher now, they want proof.

"A lot of the gains we already enjoyed have been in anticipation of economic progress which has not yet occurred," said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors.

Besides jobs, investors need to see more strength in the housing market. Traders have been tolerant of recent declines in home sales, but if those numbers don't pick up, the market is likely to become uneasy.

First-quarter earnings reports that will be issued next month need to show continued sales growth. Companies' results for the last three months of 2009 were better than expected. Now the market wants to know that demand, starting with consumers, is rising.

In early afternoon trading Tuesday, the Dow rose 53.20, or 0.5 percent, to 10,605.72. The Standard&Poor's 500 index rose 6.60, or 0.6 percent, to 1,145.10. The index is up 68.3 percent in the past year. Including dividends, it's up 72 percent.

The Nasdaq composite index rose 19.89, or 0.9 percent, to 2,352.10.

Advancing stocks outpaced those that fell by nearly 2 to 1 on the New York Stock Exchange, where volume came to 463.2 million shares.

Investors are going to make much smaller bets than they made a year ago as they look for clues about the economy. They'll also be trying to anticipate when the Federal Reserve will start raising interest rates from their current record low levels. Policymakers have kept rates low to stimulate lending and help the economy. And Fed Chairman Ben Bernanke has predicted rates will stay where they are for some time.

Still, the Fed eventually will have to raise borrowing costs to help keep inflation in check. Investors' fear is that rates might rise too quickly and could choke off the recovery.

Even if the news improves, just holding the gains of the past year could be tough. Big gains have been followed by slumps before. In the first year of the 1982-87 bull market, the S&P 500 index jumped 58 percent. But then in the second year, the index fell 14.4 percent.

That doesn't mean that's what will happen this time. In 2003, the S&P 500 index rose 26.4 percent. Then, in 2004, it peaked early and fizzled. But a 10.7 percent surge late in the year helped lift stocks.

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