Rally Gets Boost as Quarter's End Leads to Performance-Chasing

Forget about whether the plans in Washington will hit stumbling blocks. Never mind that recent 'improved' economic data merely mark a rebound from truly dismal figures. Sometimes, rallies beget rallies, and that may be particularly true as the quarter comes to a close. The Nasdaq Composite Index ended Thursday in positive territory for the year, despite all the hand-wringing after stocks had fallen markedly through the early part of this month. The widely followed indexes have rebounded 20% since the closing lows of March 9, and March looks like it will close out on a high note, though there still are three trading sessions left in the month. Should the Dow industrials end the month higher, March would be the first positive month for the Dow since August. It is at this point in rallies that performance-chasing really starts to come into play. For short-term investors, missing a rally is anathema, particularly the sharpest one since the market started to sink in late 2007. After several quarters of poor performance, the mutual fund that shows lackluster returns in this three-month period is going to invite quizzical looks. 'Whether or not the rally is warranted, it's gotten more of a push,' says Joseph Saluzzi, co-head of trading at Themis Trading. 'You've got the end of the quarter, so you've got that fun game where they try to chase performance. If you're looking at a good month [in the market] and there's nothing on your book, people are going to think, 'Where you been?'' Rallies in this bear market have been teases, and so it is understandable that some would start to think that this rally may start to top out. But market attributes don't suggest that. Bespoke Investment Group notes that in this bear market, rallies tend to fizzle when 75% to 80% of S&P 500 stocks are above their 50-day moving average; only about 71% of stocks have reached that point. Meantime, the Federal Reserve's efforts to lower interest rates has caused investors to maintain interest in riskier assets that are valued more attractively, according to John Brady, head of hedge-fund sales at MF Global. Investors believe the pressure of at least showing a reasonably decent performance at the end of the quarter will buoy shares, at least through the early part of next week. 'Window dressing is a phenomena we deal with at the end of the quarter, where people sell losers . . . but this quarter may be different -- people could be buying to make sure winners are in the portfolio,' says Richard Hughes, co-president of Portfolio Management Consultants, an investment consultancy. David Gaffen