Don’t Be Lulled By the Market Calm.doc

Don?t Be Lulled By the Market Calm If you’ve been checking your portfolio regularly, you may have noticedsomething peculiar: Week after week,the market has been moving up withoutmajor setbacks. The Standard Poor’s500-stock index soared 30 percent fromJuly 2 to Feb. 15, falling 1 percent ormore on only 13 occasions during thattime. Based on one measure of volatility,stocks haven’t risen this much amid priceswings this narrow since 1971. Don’ t get complacent. While manyinvestors expect the rally to continue, analysts say the calm can’ t last and may bea sign of a coming pullback. “It is unusual to have such a slow grind higher,”says Walter Todd, who helps manageabout $900 million at Greenwood Capital Associates in Greenwood, S.C. The Federal Reserve’s $600 billionprogram of buying Treasuries has boostedconfidence in the U.S. economy,which grew more rapidly in the fourthquarter. The decline in volatility that hasaccWhimey Kisling and Jeff Keamsthegood news puts equities at risk forshort-term losses should events challengeinvestors’ optimism. The SP 500 had its biggest drop inmore than five months on Jan. 28, falling1.8 percent, as protests in Egypt intensified. While the market bounced backquickly, overseas political uprisingsmight cause the U.S. gauge to decline again, says Scott O ‘Neil, a money manager with O’Neil Data Systems and president of MarketSmith, a research firmbased in Los Angeles. Stocks could alsofalter should central banks in developingnations keep raising rates to curb inflation, says Quincy Krosby, chief marketstrategist for Prudential Financial. The benchmark index for U.S.stocks has climbed as companies fromApple to United Parcel Service postedfourth-quarter profits that exceeded analysts’ estimates. More U.S. companiesare surpassing sales forecasts than at anytime in at least four years, according todata compiled by Bloomberg. High-er-than-estimated revenue combinedwith falling unemployment and an im-provement in manufacturing s