From the August 01, 2011 issue of Futures Magazine • Subscribe!

Are stock indexes experiencing Déjà vu?

Markets

Follow the leader

The Nasdaq 100 was the first of the three major indexes to make new highs since the 2007-2008 plunge, a feat neither the Dow nor S&P have accomplished. It has led the other indexes in recent years. There is no consensus that will continue.

Friedman and Newsom both expect the Nasdaq to continue leading the other indexes. Newsom expects the Dow could struggle the most from a blue chip point of view if we don’t begin to see better economic news. Without more positive reports, he says stocks in general will have a difficult time, although the Nasdaq should not be as heavily hit as the Dow and S&P.

Mayer says he expects the Nasdaq will lag the Dow, but beat the S&P. "Just looking at the make-up of the indexes, some of the components of the Dow are pretty cheap on absolute terms and they ought to hold their ground pretty well," he says.

While the Nasdaq has done very well recently, Larson says he is expecting the market to experience quite a shake-up in the future. "A lot of the companies that have been left behind in this two-plus-year-old rally will be the ones to outperform in the future. Today’s laggards will be tomorrow’s leaders, and vice versa," he says.

Where are we now?

There is no denying that equity indexes have experienced one of their greatest runs in history since the March 2009 lows. What isn’t so clear is where the market is going from here. Some technicians are still debating whether this is a secular bull market or simply a large correction from those lows (see "New bull or old bear?"). "When we start looking at the longer-term charts, some of these indicators, such as lower-lows and lower-highs, are signs that the longer-term trend may be turning down," Newsome says.

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There still is a lot of uncertainty in the market, especially as it pertains to the recovery. With wild cards such as debt crises here and abroad, social unrest in parts of the world and government interventions, it is no surprise there are so many opinions. As a result, uncertainty and volatility have increased and that doesn’t appear to be changing anytime soon.

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