Adam Shell -- USA TODAY
NEW YORK -- In a year highlighted by new records for the Dow Jones industrial averag, the stock market has suddenly stalled, leaving the Standard & Poor's 500 stock index achingly shy of an all-time high and raising questions about the future.
The inability of the S&P 500, a good gauge of the broad market'shealth, to make new highs has investors wondering what's taking so long. On Feb. 14, it climbed within 2 points of its October 2007 peak of 1,565.15 before pulling back. It ended Friday 8 points, or 0.5%, below a new milestone.
A new high for the S&P 500 would be significant because it would confirm that the 4-year-old bull market remains intact. The Dow, small-company Russell 2000 and the broad Wilshire 5000 have already made new highs, and it's considered a sign of strength when all the major indexes, including the S&P, rise in tandem
The market, up almost 10% this year, has been driven higher by improving U.S. economic data, including a solid fourth-quarter earnings season, slow but steady housing and jobs recoveries, and the Federal Reserve's latest promise to continue its easy-money policies.
So what's holding back the S&P 500? In recent days, short-term cracks in the bullish playbook have emerged:
• Euro crisis resurfaces. This time it's not Greece. Or Portugal. Or Ireland. Or Spain. It's the tiny Mediterranean island of Cyprus asking for a bailout. Few on Wall Street think Cyprus, which accounts for just 0.2% of the eurozone's economic output, is big enough to pose a major risk to U.S. markets. A banking collapse there wouldn't be as catastrophic as one in a bigger country like Spain and Italy. Most believe a deal will get done and the crisis will pass, resulting in a relief rally.
But one thing worries investors as Cyprus and eurozone finance ministers try to hammer out a deal to avert a default, a banking crisis and a possible exit from the euro currency. That is whether a controversial plan to tax bank deposits, especially insured deposits below €100,000, remains in the final deal.
"It is a precedent issue," says Rod Smyth, chief investment strategist at Riverfront Investment Group. It raises fears that those with money in banks in other troubled parts of Europe could be subject to a similar tax, which would undermine the banking system, perhaps causing bank runs in several countries.
• Misses cause profit scare. Fourth-quarter earnings for S&P 500 companies grew a better-than-expected 6.2%, says Thomson Reuters. But weak reports this week from tech firm Oracle and package-delivery giant FedEx sparked worries of a profit slowdown.
Government spending cuts and tax hikes won't help. Growth the first three months of 2013 is expected to shrink to a 1.5% annual rate and companies' negative pre-announcements for the quarter have trounced positive ones by a margin of 4.4-to-1, much higher than the long-term average of 2.4-to-1. "People are just starting to worry about that," says Brian Gendreau, market strategist at Cetera Financial Group.
• Calls for correction grow louder. The S&P 500 is near the level that marked peaks in 2007 and 2000. And with stocks up nearly 10% already in 2013, it's unlikely the market will continue to keep rising at its current pace, says Smyth. The market is also heading into a traditionally weak summer period, known as "Sell in May and Go Away."