Wall Street seeks to extend fragile resuscitation of a recession in the US and global economies, but the key question for traders now is whether the heavy doses of medicine from governments around the world will lead to quick recovery. The coming week however, will be marked by the US presidential election on Tuesday and key data, particularly from the struggling auto sector.
The Dow Jones Industrial Average showed a stunning rebound of 11.29 percent for the week, the best since 1998, led by Monday's 10 percent surge. But that failed to make up for the panic selling of earlier in the month, leaving the blue chip index down a hefty 14 percent for October and nearly 30 percent for the year.
The broad-market Standard & Poor's 500 index vaulted 10.49 percent on the week to 968.75, but fell 17 percent over October. The technology-heavy Nasdaq composite advanced 10.88 percent to 1,720.95, but lost 18 percent in the month.
The strong gains still left the market deep in the red after one of the ugliest months in Wall Street history.
"Investors were pricing in a very severe recession, if not depression, and right now we're going through a relief rally," said Standard & Poor's analyst Sam Stovall. "Investors feel that stock prices might have overdone it to the downside."
Joachim Fels at Morgan Stanley said authorities in the US and elsewhere are taking the aggressive actions needed to stem the crisis, including interest rate cuts and moves to pump vast amounts of liquidity into the financial system.
"In our view, even highly unorthodox measures such as zero interest rates, direct central bank lending to the private sector, heavy government interference with private banks' lending policies or large-scale bank nationalisations cannot be excluded," Fels said.
"In short, we believe that the authorities will do whatever it takes to prevent a depression. While a global recession appears unavoidable, we believe that markets have gone too far in pricing in a multi-year deflationary outcome."
Christine Li at Economy.com said markets were more focused on central bank actions to cut rates around the world, on top of a variety of initiatives to ease a global credit squeeze. "It seems the rescue packages are slowly alleviating liquidity problems. Short-term funding costs are easing," she said.
"Since September, the European and the US governments have provided banks with up to 3.0 trillion dollars to encourage interbank lending and provide bank capital."
Fred Dickson at DA Davidson said Wall Street turns its focus to the presidential election and a smattering of economic and corporate news. Key data will include monthly sales data from the battered auto sector and Friday's report on payrolls, one of the best indicators of economic momentum. "We expect it won't make very good reading as the news coming from companies who have already reported third quarter earnings continues to point to an economy that has come to an abrupt stop," Dickson said.
Comments
Comments are closed.