US stocks regained some stability in the past week with investors hoping the Federal Reserve will deliver fresh interest rate cuts in days, but analysts warned that markets would remain volatile.
Global markets have slumped and rebounded sharply in the past week amid fears that the world's biggest economy could slip into US recession.
A surprise Fed rate cut of historic proportions on Tuesday helped calm the markets, and analysts said the central bank is poised to cut rates again at a looming January 29-30 policy meeting.
In the week to Friday, the benchmark blue chip Dow Jones Industrial Average climbed 0.8 percent to close at 12,207.17. The Dow is down around almost eight percent for the year to date, however.
The tech-rich Nasdaq composite lost 0.6 percent to 2,326.20 while the Standard & Poor's 500 index managed an increase of 0.4 percent to 1,330.61. Both indexes have also endured hefty losses sine the start of 2008. "Market sentiment whipsawed between near panic and a more hopeful view. We still believe that investors should stay close to home going into the Fed meeting," analysts at Lehman Brothers wrote in a briefing note, referring to the past week's trading.
Analysts cautioned that the roller-coaster ride of recent weeks is probably not over just yet. News that a "rogue trader" at French banking giant Societe Generale lost around seven billion dollars stoked renewed unease at week's end.
Wall Street has struggled to make headway so far this year amid a worsening US housing slump and a related credit squeeze.
The large rate cut unleashed by the Fed on Tuesday appeared to soothe some investors, the central bank slashed its key federal funds rate by three quarters of a percentage point to 3.50 percent, but market participants believe fresh cuts are in store.
"We expect another 50 basis point cut to a 3.00 percent federal funds rate target on Wednesday," said Peter Kretzmer, a senior economist at Bank of America.
The Fed embarked on a rate-cutting mission in September as large banks began divulging hefty losses from ailing mortgage investments, triggering a credit crunch.
"Stresses in the financial markets remain high. The Fed will want to take further insurance against significant downside risks, especially in the next four months, as the fiscal stimulus is not expected to have an impact on growth until the end of the second quarter, at the earliest," said Patrick Newport, an economist at Global Insight.
The administration of US President George W. Bush and congressional lawmakers are rushing to approve an economic stimulus plan worth around 150 billion dollars which is likely to contain tax rebates and business incentives.
The pace of economic news will pick up significantly in the coming week.
The government is due to release its initial estimate for fourth-quarter economic growth with most economists predicting growth slowed to an annualised 1.2 percent compared with a robust 4.9 percent pace in the third quarter of last year.
Although some analysts are ringing recession alarm bells, it's not yet clear that the US economy will have to endure a recession and some analysts believe the economy will not pitch into a recession.
The coming week will also reveal fresh snapshots on existing home sales, consumer confidence, auto sales and the job market among other surveys.
Most analysts expect nonfarm payroll hiring to have rebounded to around 50,000 jobs in January after hiring slowed to just 18,000 positions during December.
Bond prices rose over the week as investors sought a safe haven from stocks. The yield on the 10-year Treasury bond declined to 3.584 percent from 3.648 percent a week earlier, while that on the 30-year bond fell to 4.282 percent from 4.297 percent. Bond yields and prices move in opposite directions.
Comments
Comments are closed.