With record highs in sight, stocks face roadblocks

NEW YORK (Reuters) - If Wall Street needs to climb a wall of worry, it will have plenty of opportunity next week.

Major U.S. stock indexes will make another attempt at reaching all-time records, but the fitful pace that has dominated trading is likely to continue. Next Friday's unemployment report and the hefty spending cuts that look like they about to take effect will be at the forefront.

The importance of whether equities can reach and sustain those highs is more than Wall Street's usual fixation on numbers with psychological significance. Breaking through to uncharted territory is seen as a test of investors' faith in the rally.

"It's very significant," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

"The thinking is, there's just not enough there for an extended bull run," he said. "If we do break through (record highs), then maybe the charts and price action are telling us there's something better ahead."

Flare-ups in the euro zone's sovereign debt crisis and next Friday's report on the U.S. labor market could jostle the market, though U.S. job indicators have generally been trending in a positive direction.

Small- and mid-cap stocks hit lifetime highs in February. Now the Dow Jones industrial average <.dji> and the S&P 500 <.spx> are racing each other to the top. The Dow, made up of 30 stocks, is about 75 points - less than 1 percent - away from its record close of 14,164.53, which it hit on October 9, 2007. The broader S&P is still 3 percent away from its closing high of 1,565.15, also reached on October 9, 2007.

The advantage may be in the Dow's court. So far in 2013, it has gained 7.5 percent, beating the S&P 500 by about 1 percent.

THE RALLY AND THE REALITY CHECK

The Dow's relative strength owes much to its unique make-up and calculation, as well as to investors' recent preference for buying value stocks likely to generate steady reliable gains, rather than growth stocks.

But the more defensive stance illustrates how stock buyers are getting concerned about this year's rally. While investors don't want to miss out on gains, they're picking up companies that are less likely to decline as much as high-flying names - if a market correction comes.

The Russell Value Index <.rav> is up 7.6 percent for the year so far, outpacing the Russell Growth Index's <.rag> 5.7 percent rise. Within the realm of the S&P 500, the consumer staples sector led the market in February, gaining 3.1 percent.

There is some concern that growth-oriented names are being eclipsed by defensive bets, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati.

"This isn't a be-all and end-all sell signal by any means, but we would feel much more comfortable if some of the more aggressive areas, like technology and small caps, would start to gain some leadership here," Detrick said.

Signs that investors are becoming concerned about the rally's pace is evident in the options market, where the ratio of put activity to call activity has recently shifted in favor of puts, which represent expectations for a stock to fall.

"We are seeing some put hedging in the financials, building up for the past month," said Henry Schwartz, president of options analytics firm Trade Alert in New York.

The put-to-call ratio representing an aggregate of about 562 financial stocks is 1:1, when normally, calls should be outnumbering puts.

Investors have no shortage of reasons to crave the relative safety of blue chips and defensive stocks. Although markets have mostly looked past uncertainty over Washington's plans to cut the deficit, fiscal policy negotiations still pose a risk to equities.

The $85 billion in spending cuts set to begin on Friday is expected to slow economic growth this year if policymakers do not reach a new deal. Markets so far have held firm despite the wrangling in Washington, but tangible economic effects could pinch stock prices going forward.

The International Monetary Fund warned that full implementation of the cuts would probably take at least 0.5 percentage point off U.S. growth this year.

EASY MONEY AND TEPID HIRING

Investors will also take in a round of economic data at a time when concerns are percolating that the market is being pushed up less by fundamentals and more by loose monetary policy around the world.

The main economic event will be Friday's non-farm payrolls report for February. The U.S. economy is expected to have added 160,000 jobs last month, only a tad higher than in January, in a sign the labor market is healing at a slow pace. The U.S. unemployment rate is forecast to hold steady at 7.9 percent.

While lackluster data has been a catalyst in the past for stock market gains as investors bet it would ensure continued stimulus from the Federal Reserve, that sentiment may be wearing thin.

Markets stumbled last week following worries that the Fed might wind down its quantitative easing program sooner than expected.

"It shows the underpinning of the market is being driven at this point by monetary policy," Hellwig said.

With investors questioning what is behind the rally, it will make a run to record highs even more significant, Hellwig added.

"There's smart people that are in the bull camp and the bear camp and the muddle-through camp," Hellwig said. "The fact that you can statistically, using historical evidence, make a case for going higher, lower, or staying the same makes this number very important this time around."

(Wall St Week Ahead runs every Friday. Comments or questions on this column can be emailed to: leah.schnurr(at)thomsonreuters.com)

(Reporting by Leah Schnurr; Additional reporting by Doris Frankel in Chicago; Editing by Jan Paschal)

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Kelly lifts No. 3 Duke past No. 5 Miami 79-76

DURHAM, N.C. (AP) — Ryan Kelly had waited two months for the chance to help his Duke teammates reclaim the form that made them the nation's top-ranked team.

He returned with a stunning performance that shook up No. 5 Miami and left his own Hall of Fame coach struggling for the right words.

The senior scored a career-high 36 points in his return from a foot injury that had sidelined him since January, helping the third-ranked Blue Devils beat the Hurricanes 79-76 on Saturday night in a matchup of the Atlantic Coast Conference's top teams.

"I guess I was ready for it," Kelly said. "That's all I can say."

Kelly knocked down 10 of 14 shots — including 7 of 9 3-pointers— for the Blue Devils (25-4, 12-4 ACC), who avenged a blowout road loss in January by grinding out a tough win in Cameron Indoor Stadium. He also went 9-for-12 from the foul line and pulled down seven rebounds in 32 minutes.

It left Duke coach Mike Krzyzewski joking to reporters that he was interested to read how they'd describe Kelly's big night.

"I mean, me saying 'spectacular' or whatever doesn't do his performance justice," Krzyzewski said. "One for the ages. Probably as good a performance as any player has had — a Duke player has had — in Cameron."

Kelly's performance was the highlight of a game that certainly lived up to the teams' lofty rankings and their status as the league's best. Miami led by seven in the first half and by two at the break, while Duke never led by more than five until the final 3 minutes.

Quinn Cook added 15 points, including a 3-pointer that gave Duke a 10-point lead with 1:55 left.

But the Hurricanes (23-5, 14-2) made a frantic rally and missed two 3s in the final seconds to tie it. Shane Larkin came up short on the first over Kelly. Durand Scott ran down the rebound and fired a pass to the left corner to Rion Brown, whose final 3 clanged off the rim as the horn sounded.

Kelly's season-high was 22 points and his career-best was 23 points before Saturday. He had missed 13 straight games with the right foot injury, though he had been gradually increasing his work in practice in recent days before going right back in the starting lineup Saturday.

"I just knew I was going to play my hardest," Kelly said. "Honestly, though, more than anything it was just going to be whether I could hold up with my breathing. I haven't played any games in a long time, and being in a game is a lot different from being in practice or anything you can do. But I think I held up all right."

He missed a 3 on Duke's first possession, but knocked one down 2½ minutes in and never looked rusty.

"Well, I thought we prepared for Ryan Kelly but obviously not for that Ryan Kelly," Miami coach Jim Larranaga said. "He was sensational from start to finish."

Miami had beaten Duke 90-63 in January and had already clinched at least a share of the ACC regular-season title with the Blue Devils' loss at Virginia on Thursday night. Miami will win its first ACC crown outright by beating either Georgia Tech or Clemson at home this week.

But Saturday's game was about more than just the league standings or the chance to avenge that blowout loss for the Blue Devils. Rather, this was their chance to reclaim some momentum for March with Kelly's return.

"The thing (the win) does for us is it gives us a chance over the next few weeks to transition to the NCAA tournament," Krzyzewski said. "We're just running a little bit different race than anybody else right now. And it doesn't mean everything's OK, but it's a lot better."

Duke was unbeaten with nonconference wins against Kentucky, Louisville and Ohio State when Kelly went down against Clemson in January. It was during Kelly's absence that Duke suffered 27-point loss at Miami on Jan. 23, a game that saw the Hurricanes romping unchecked through Duke's passive defense and even slapping the floor in an apparent jab at the Blue Devils' tradition.

The 6-foot-11 forward was averaging 13 points and five rebounds, and stretched defenses with his outside shot to open space for Mason Plumlee inside.

Fittingly, he started the spurt that finally put the Blue Devils ahead for good. First he hit a pair of free throws, then knocked down a 3-pointer over Kenny Kadji with the shot clock winding down to push Duke to a 58-56 lead with 9:13 left. Plumlee followed with a short hook to cap the 7-0 run for a 60-56 edge.

Duke extended its lead with another 7-0 burst, with freshman Rasheed Sulaimon scoring a pair of driving baskets before Cook's 3 that appeared to have Duke in control.

Miami fought back, getting a 3-pointer from Trey McKinney Jones to make it a one-possession game with 1:06 left. But in addition to those late misses, Larkin also had a costly turnover when he threw away a sideline pass to Brown with Miami trailing by just two with about 30 seconds left.

"This is the type of game that everybody lives for," said Durand Scott, who scored 12 for the Hurricanes. "You can't really get mad at this. We went out there, we played our hardest, we're proud of ourselves, and our team did the best that we could. We just fell short a 3."

Duke shot 52 percent, with Kelly's big day offsetting Seth Curry's struggles (seven points on 2-for-8 shooting) and Miami's domination on the boards that led to a 20-4 edge in second-chance points.

Larkin scored 25 points to lead Miami, while Kenny Kadji added 17 points and 10 rebounds. But big man Reggie Johnson had a miserable night by going scoreless on 0-for-5 shooting and picking up his fourth foul in the first minute after halftime.

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U.S. evolves on same-sex marriage

STORY HIGHLIGHTS

• The president and the nation have shifted perspectives on same-sex marriage


• Supreme Court ruling on California's same-sex marriage ban a critical test


• Growing public support for gay marriage give proponents hope for change

Washington (CNN) -- The nation's growing acceptance of same-sex marriage has happened in slow and painstaking moves, eventually building into a momentum that is sweeping even the most unlikely of converts.

Even though he said in 2008 that he could only support civil unions for same-sex couples, President Barack Obama nonetheless enjoyed strong support among the gay community. He disappointed many with his conspicuously subdued first-term response to the same-sex marriage debate.

Last year, after Vice President Joe Biden announced his support, the president then said his position had evolved and he, too, supported same-sex marriage.

So it was no small matter when on Thursday the Obama administration formally expressed its support of same-sex marriage in a court brief weighing in on California's Proposition 8, which bans same-sex weddings. The administration's effort was matched by at least 100 high-profile Republicans — some of whom in elections past depended on gay marriage as a wedge issue guaranteed to rally the base — who signed onto a brief supporting gay couples to legally wed.

Obama on same-sex marriage: Everyone is equal

Then there are the polls that show that an increasing number of Americans now support same-sex marriage. These polls show that nearly half of the nation's Catholics and white, mainstream Protestants and more than half of the nation's women, liberals and political moderates all support same-sex marriage.

According to Pew Research Center polling, 48% of Americans support same-sex marriage with 43% opposed. Back in 2001, 57% opposed same-sex marriage while 35% supported it.

In last year's presidential election, same-sex marriage scarcely raised a ripple. That sea change is not lost on the president.

"The same evolution I've gone through is the same evolution the country as a whole has gone through," Obama told reporters on Friday.

Craig Rimmerman, professor of public policy and political science at Hobart and William Smith colleges says there is history at work here and the administration is wise to get on the right side.

"There is no doubt that President Obama's shifting position on Proposition 8 and same-sex marriage more broadly is due to his desire to situate himself on the right side of history with respect to the fight over same-sex marriage," said Rimmerman, author of "From Identity to Politics: The Lesbian and Gay Movements in the United States."

"I also think that broader changes in public opinion showing greater support for same-sex marriage, especially among young people, but in the country at large as well, has created a cultural context for Obama to alter his views."

For years, Obama had frustrated many in the gay community by not offering full-throated support of same-sex marriage. However, the president's revelation last year that conversations with his daughters and friends led him to change his mind gave many in that community hope.

Last year, the Obama administration criticized a measure in North Carolina that banned same-sex marriage and made civil unions illegal. The president took the same position on a similar Minnesota proposal.

Obama administration officials point to what they see as the administration's biggest accomplishment in the gay rights cause: repealing "don't ask, don't tell," the military's ban on openly gay and lesbian members serving in the forces.

Then there was the president's inaugural address which placed the gay community's struggle for equality alongside similar civil rights fights by women and African-Americans.

"Our journey is not complete until our gay brothers and sisters are treated like anyone else under the law, for if we are truly created equal, then surely the love we commit to one another must be equal, as well," Obama said in his address after being sworn in.

In offering its support and asserting in the brief that "prejudice may not be the basis for differential treatment under the law," the Obama administration is setting up a high stakes political and constitutional showdown at the U.S. Supreme Court over a fast-evolving and contentious issue.

The justices will hear California's Proposition 8 case in March. That case and another appeal over the federal Defense of Marriage Act will produce blockbuster rulings from the justices in coming months.

Beyond the legal wranglings there is a strong social and historic component, one that has helped open the way for the administration to push what could prove to be a social issue that defines Obama's second term legacy, Rimmerman said.

The nation is redefining itself on this issue, as well.

Pew survey: Changing attitudes on gay marriage

The changes are due, in part, to generational shifts. Younger people show a higher level of support than their older peers, according to Pew polling "Millennials are almost twice as likely as the Silent Generation to support same-sex marriage."

"As people have grown up with people having the right to marry the generational momentum has been very, very strong," said Evan Wolfson, president of Freedom to Marry, a gay rights organization.

That is not to say that there isn't still opposition.

Pew polling found that most Republicans and conservatives remain opposed to same-sex marriage. In 2001, 21% of Republicans were supportive; in 2012 that number nudged slightly to 25%.

Conservative groups expressed dismay at the administration's same-sex marriage support.

"President Obama, who was against same-sex 'marriage' before he was for it, and his administration, which said the Defense of Marriage Act was constitutional before they said it was unconstitutional, has now flip-flopped again on the issue of same-sex 'marriage,' putting allegiance to extreme liberal social policies ahead of constitutional principle," Family Research Council President Tony Perkins said in a statement.

But there are signs of movement even among some high profile Republican leaders

Top Republicans sign brief supporting same-sex marriage

The Republican-penned friend of the court brief, which is designed to influence conservative justices on the high court, includes a number of top officials from the George W. Bush administration, Mitt Romney's former campaign manager and former GOP presidential candidate Jon Huntsman.

It is also at odds with the Republican Party's platform, which opposes same-sex marriage and defines marriage as a union between a man and a woman.

Still, with White House and high-profile Republican support, legal and legislative victories in a number of states and polls that show an increasing number of Americans support same sex-marriage, proponents feel that the winds of history are with them.

"What we've seen is accelerating and irrefutable momentum as Americans have come to understand who gay people are and why marriage matters," Wolfson said. "We now have a solid national majority and growing support across every demographic. We have leaders across the spectrum, including Republicans, all saying it's time to end marriage discrimination."

CNN's Peter Hamby, Ashley Killough and Bill Mears contributed to this report.

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