The twists and turns of a turbulent week on Wall Street have made traders dizzy, but analysts are looking for a calmer ride in the coming week as the market digests the latest efforts to battle the financial market firestorm.
The mood has shifted from panic to euphoria as the financial system froze up. But some say the crisis in markets shows signs of easing.
The major indexes ended little changed despite the unprecedented volatility. The blue chip Dow Jones Industrial Average fell 0.29 percent on the week to 11,388.44 after big rallies on Thursday and Friday recouped heavy losses earlier in the week.
The broad-market Standard & Poor's 500 index rose 0.27 percent to 1,255.08 and the technology-heavy Nasdaq composite managed a gain of 0.56 percent to 2,273.90. "I am not sure I have ever seen such volatility," said Andy Brooks, head of trading at T Rowe Price, after one hectic back-and-forth session.
The historic week came as Wall Street giant Lehman Brothers collapsed after failing to find a buyer and the US government offered an 85-billion-dollar lifeline to insurance giant AIG to stave off a financial market tsunami. Meanwhile Merrill Lynch made an emergency deal to sell itself to Bank of America.
The government action failed to calm financial markets and at midweek credit markets appeared to seize up, forcing central banks to offer massive amounts of liquidity to the banking system. At one point, investors flocked to gold, oil and short-term Treasury bills in a massive flight to safety. Amid the firestorm, the US government announced a plan described as "the mother of all bailouts" in an effort to help banks and financial firms purge their books of the so-called toxic mortgage assets stemming from the housing market collapse. The plan appeared to help skittish markets settle down.
"Wall Street appears to have turned the corner," said Fred Dickson at DA Davidson & Co, reacting to what he called "a package designed to attack the problems at the heart of the financial crisis and reduce the general level of fear that has move moved onto Main Street."
Dickson added: "While we doubt the comprehensive plan, in whatever form it finally emerges from Congress, immediately ends the housing crisis or will get the economy back on a more traditional growth track, it should provide stability to the stock market and restore confidence to the global banking system."
Carl Weinberg, chief economist at High Frequency Economics, said the plan would likely be modelled on the Resolution Trust Corp (RTC) that was created to deal with the 1980s banking crisis, and should add to stability.
"Assuming this RTC2 plans goes the distance, financial markets will be a lot less unruly in the weeks ahead compared to the week just past," Weinberg said. "However, fixing the banks does not fix the economy. Even with the banking system fixed, the United States economy remains in a growth recession, teetering on the brink of real contraction."
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