A newly revived Wall Street faces a fresh test of momentum in the coming week with a wave of corporate results that may indicate whether the latest rebound is for real. The results and profit guidance will be scrutinised for signs of whether companies are able to remain profitable in the face of a housing meltdown and credit squeeze that is weighing on economic growth.
The blue chip Dow Jones Industrial Average rallied 3.57 percent to 11,496.57 in the week to Friday, bouncing back from four weeks of heavy losses. The tech-rich Nasdaq climbed 1.95 percent for the week to 2,282.78 and the broad-market Standard & Poor's 500 index added 1.71 percent to 1,260.68.
The market saw a strong snapback after four moribund weeks, managing to overcome fears about a collapse at Fannie Mae and Freddie Mac, the mortgage finance giants which underpin trillions of dollars in the mortgage market.
Actions by the Federal Reserve to open credit to Fannie and Freddie and statements of support from the US Treasury eased fears about a new financial shock, helping the stock market recover. Economist Ethan Harris at Lehman Brothers said the response to the crisis was encouraging.
"The good news is that now monetary, fiscal and regulatory authorities are taking action to prevent a deeper shock to the economy," he said. "Fannie Mae and Freddie Mac are at the heart of a functioning US housing and financial market." Yet analysts are still cautious on whether the stock market move is sustainable.
"It was a nice bounce in stocks, but it's too early to declare 'Morning in America,'" said Douglas Porter, economist at BMO Capital Markets. "A theme through the rest of earnings season may be that nonfinancials are now grappling with the tag team of lofty energy costs and weak economic growth.
After a two-year slide, the US housing sector has not quite hit bottom yet, and will require a prolonged period of healing. At least for now, though, it appears the market has moved past another point of extreme bearishness."
The rebound was led by the banking sector, which some analysts say may have hit bottom after posting tens of billions of dollars of losses from bets on US real estate. Despite hefty losses for some banks and more big writedowns, the results for the big US banks have been generally better than expected on Wall Street.
Another key for Wall Street was a big drop in oil prices, which tumbled below 130 dollars in the past week, well off records of around 147 dollars a barrel. "Oil more than any other single item could be a positive catalyst for the market as lower energy costs would help to relieve pressure on consumers," said Gregory Drahuschak, analyst at Janney Montgomery Scott.
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