S&P’s Stovall: Stock Market Due for Pullback

Wednesday, 22 Feb 2012 07:32 AM

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Stocks have done well this year, with the S&P 500 rising 1.4 percent to 1,361 in a week, up 24 percent from its October low and just points shy of its 2011 high.

The Dow, meanwhile, passed the 13,000 mark for the first time since May 2008.

Still, stocks may be due for a breather, and profit taking appears to be likely in the forecast, says Sam Stovall, chief equity strategist at S&P Capital IQ.

"The market continues to work its way higher. We are knocking on the door of the April 29 recovery high. It feels like there are an awful lot of people calling for a correction — or at least a digestion — and I’m one of them," says Stovall, according to CNBC.

Stocks fell late in 2011 and normally under such scenarios, the rally that follows see equities rebounding about 23 percent in six months.

Stocks already gained that much in less than five months, which ups the chances of a correction, normally defined as a 10 percent drop.

"We think we’re going to get to where we are now, or even as high as 1380 (on the S&P) and then maybe go down to the low 1300s before approaching 1400. That’s the scenario our technicians are talking about," Stovall says.

Others agree that a correction may be likely, and while it won't mean the market will necessarily finish the year in negative territory, don't expect blue skies ahead either thanks to homegrown and European uncertainties.

"This rally is not about irrational enthusiasm as much it is getting rid of irrational fear," says Brad Sorensen, director of market and sector research for Charles Schwab in Denver, according to CNNMoney.

"There will be more bumps in the road. The whole year is not going to be as smooth as the first six weeks have."

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