Wall Street finally found something to cheer about as the holiday season kicks off, offering hope that the battered stock market has turned a corner. Rebounding from multiyear lows, the Dow Jones Industrial Average surged 9.73 percent in an abbreviated week to end Friday at 8,829.04, after a five-session win streak.
The tech-heavy Nasdaq rallied 10.92 percent to 1,535.57 while the broad-market Standard & Poor's 500 came back from the prior week's 11-year low to gain 12.03 percent to 896.24.
For some, the rally meant the market has managed to successfully hold above key lows, in a positive sign for an ailing Wall Street. The coming week provides investors with another gut-check and more economic and corporate data likely to be gloomy.
Monthly sales from auto-makers, which have been dropping precipitously, will be closely followed by the market. Investors also will monitor Friday's monthly employment reported expected to show a loss of 300,000 jobs and a jobless rate rising to 6.8 percent.
Although the economic news continues to be grim, many investors are looking past the current turmoil seeing signs of an easing of a crippling credit crunch that could mean a recovery for the economy and markets in 2009. Ed Yardeni at Yardeni Research said the market was encouraged by the latest initiative by the US Treasury and Federal Reserve, allowing the Fed to buy up to 600 billion dollars in mortgage securities and pump 200 billion dollars into securities backed consumer credit.
Also helping was the government rescue of troubled bank Citigroup, which got a fresh capital injection of 20 billion dollars and a guarantee on 300 billion dollars in troubled mortgage assets.
"Investors may believe that the Treasury has finally stumbled on a good idea. Instead of buying troubled assets, why not just slap a government guarantee on them and ring-fence them?" Yardeni said. "If the government guarantees can deliver a good Santa Claus rally for the financials and the overall market over the rest of the year, that's OK by me."
The market also has been encouraged by president-elect Barack Obama's efforts to put in place a strong economic team to tackle the crisis when he takes office in January. Al Goldman at Wachovia Securities said that "Obama's selection of a very experienced and center-to-right economists for his administration hit a market that was short term very oversold."
Goldman added, "The question is whether we have just experienced a bear market rally or the start of something much bigger. This bear market has experienced a number of good bounces, only to lose momentum and fail. Thus, the trend in place says that the best assumption at this time is that it is a bear market rally."
Some said the market is close to a bottom if that has not already been reached, with selling pressures exhausted after a dismal year that has pushed the broad market down nearly 40 percent. "The economic news is dreadful, as it should be as we're staring into the abyss of a recession," said Philip Orlando at Federated Investments.
"But the economic news should get progressively less dreadful as we proceed through the first half of 2009, as the fiscal and monetary policy stimulus begins to kick the economy back into gear." Based on this assumption, Orlando said the market may be poised to extend its gains.
"We believe that businesses, consumers and investors will begin to gain confidence over the course of 2009 that the world is not coming to an end and that the recession will eventually end," he said. "At that point, we'd like to think that we'll look back to the fourth quarter of calendar 2008, as the bottom of the bear market and the start of the next up cycle for stocks."
Bonds rose sharply in the past week, with yields falling to unprecedented lows amid signs of easing credit conditions. The yield on the 10-year Treasury bond tumbled to 2.957 percent from 3.167 percent a week earlier, and the 30-year Treasury bond yield slid to 3.487 percent from 3.663 percent. The lower yields reflect higher bond prices.
Comments
Comments are closed.