With renewed optimism of a Federal Reserve interest rate cut, Wall Street will begin a holiday-shortened week on Tuesday with eyes turned toward 6 percent from the prior week to finish at 13,357.74 points on Friday while the tech-rich Nasdaq rose 0.76 percent to 2,596.36 points.
The broad market Standard & Poor's 500 index ended 0.36 percent lower than a week ago, at 1,473.99 points. Bonds gained on the market turbulence. The yield on the 10-year Treasury bond fell to 4.537 percent on Friday from 4.633 percent a week earlier and that on the 30-year Treasury dropped to 4.831 percent from 4.897 percent. Bond prices and yields move in opposite directions.
The market continued weeks of turbulence due to a credit crunch that originated in the high-risk subprime mortgage sector, where lenders offer home-loans to people with shaky credit.
Investors are worrying about the unknown extent of the economic damage from the credit fallout. Foreclosures are rising as some homeowners, particularly those with adjustable-rate mortgages, find they cannot make their payments as interest rates climb.
Counting on the Federal Reserve to ease monetary policy and soothe the markets, investors finally were reassured Friday by a speech by Fed chairman Ben Bernanke and measures to help distressed homeowners unveiled by President George W. Bush.
"The (Fed) continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets," Bernanke said in his first public remarks since the mortgage-related credit crunch roiled markets around the world in early August.
Bernanke's speech, to a Fed symposium in Wyoming, "was the minimum the market wanted to hear," said Marc Pado, an analyst at Cantor Fitzgerald.
While the Fed chief did not explicitly say the central bank would cut rates, investors "didn't want to hear a lot of talk about inflation," Pado said.
The speech "wasn't exciting, but it was reassuring," he added.
For Stephen Gallagher of Societe Generale, Bernanke's remarks "validate expectations the Fed will do what is necessary to restore order and liquidity in the capital markets."
Investors also found reassurance on Friday from comments from Bush, who unveiled measures aimed at helping sub-prime borrowers avoid foreclosure and softening the blow of the subprime crisis on the overall economy. "US equity markets moved up somewhat uneasily last week, as economic indicators from August were relatively mixed for the outlook, while key speeches from President Bush and Fed Chairman Bernanke on Friday reassured investors to the effect that policy-makers were alert to the looming issues in the housing and credit markets," wrote Global Insight analysts Brian Bethune and Nigel Gault.
Cantor Fitzgerald's Pado predicted the markets would get "a little bit of a reprieve" from volatility next week, ahead of the next Fed interest-rate meeting on September 18.
The markets are closed Monday for the Labour Day holiday, which honours American workers. The market will be on tenterhooks for the release of the August employment report next Friday, expected to show a modest growth in job creations, analysts said.
"If there is one thing that gets the Fed to move one way or the other on rates" it is the jobs market, because it is a leading indicator of the state of the economy, Pado said.
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