Wall Street's roller-coaster ride showed no sign of ending over the past week as the market churned lower and waited for help from Washington in easing the deep economic crisis. In the week to Friday, the main indexes lost ground as investors appeared confused by the Obama administration's bank rescue plan and awaited implementation of a massive economic stimulus.
The Dow Jones Industrial Average slid 5.2 percent over the week to end Friday at 7,850.41, reversing course after gains in the prior week. The tech-rich Nasdaq composite fell 3.6 percent to 1,534.36 and the broad-market Standard & Poor's 500 tumbled 4.8 percent to 826.84.
The sputtering action on Wall Street, which gets a respite with the Presidents Day holiday Monday, has been a reaction to news from Washington as economic reports show the recession deepening. The markets saw renewed turmoil after Treasury Secretary Timothy Geithner unveiled a bank rescue plan that was short on details, disappointing many investors. The indexes were unable to recover in the week from Tuesday's slide.
"The problem with Secretary Geithner's announcement - and the reason for an almost five percent drop in stocks after it was announced - is the continued lack of detail on exactly how the plan will be implemented," said economist Ethan Harris at Barclays Capital. "Even with aggressive policy action, the markets will punish any lack of clarity or sign of hesitation from policy makers."
Harris said the market's fragility "comes from repeated false recoveries in the market and the sense that aggressive policy is the only thing preventing a much more severe recession and capital markets sell-off."
"The policy play-book is simple: don't promise more than you can deliver, don't promise big programs without explaining how they will work, and don't outline how bad the economy is unless you immediately offer a clear, credible turnaround plan," he added.
Michael Jones, chief strategist at Riverfront Investment Group, said the new administration "missed a golden opportunity to restore market confidence." John Ryding at RDQ Economics pointed out that the markets were disappointed but could recover as details of the plan to help banks remove toxic assets from their balance sheets emerge.
"We are looking forward to getting more information on the (plan) in the very near future and, if properly designed, we think it will be well-received by the markets," Ryding said. David Kotok at Cumberland Advisors said the stock market is losing confidence in the new administration.
Fred Dickson, market strategist at DA Davidson, said markets remain nervous about the impact of the massive economic stimulus and reports that the administration will unveil a new program to help struggling homeowners facing defaults.
"We hope the administration rapidly comes forward with the details of a mortgage subsidisation program, if one indeed is being proposed," Dickson said. "Market anxiety over big rumoured programs, particularly as they pertain to housing or the banking system, typically produces abnormal price volatility." Dickson said however he sees the market holding in its trading range until a new catalyst comes along.
"Most stocks are holding well above their fall lows, an indication of market resiliency in the face of the steady flow of bad economic news, disappointing earnings news, and the growing number of companies simply refusing to provide an outlook regarding the current quarter due to the difficult economic conditions," he said.
Bonds gained as investors sought shelter from the turmoil. The yield on the 10-year Treasury bond fell to 2.882 percent from 2.979 percent a week earlier, and that on the 30-year bond eased slightly to 3.682 percent from 3.683 percent. Bond yields and prices move in opposite directions.
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