As the idea of recession sinks in on Wall Street, traders are looking beyond the abyss in hope of a quick recovery for the US economy that could help avert a prolonged bear market.
Stocks posted solid gains over the past week even after US Federal Reserve Chairman Ben Bernanke finally uttered the “R” word and economic data appeared to confirm a significant downturn is underway.
The Dow Jones Industrial Average rallied 3.2 percent in the week to Friday to 12,609.42 and the Standard & Poor’s 500 broad-market index leapt 4.2 percent to 1,370.40.
The NASDAQ composite dominated by tech shares vaulted 4.9 percent to 2,370.98.
Wall Street has started off the second quarter on a strong note after a horrific start to the year. The main indexes remain lower for 2008 with the Dow off 4.9 percent, the NASDAQ 10.6 percent weaker and the S&P down 6.7 percent.
Stephen Auth, chief investment office at Federated Investors, said he believes the broad market can manage a gain of around 10 percent for the year even with the economy in recession.
“We expect that the recession will be short and shallow, ending in the second half of the year,” he said in a note to clients. “Our outlook for equities anticipates a return to reasonable economic growth later this year and into 2009.”
Bonds were mixed. The yield on the 10-year Treasury bond rose to 3.481 percent from 3.466 percent a week earlier.
The yield on the 30-year bond fell to 4.381 percent from 4.345 percent.
Bond yields and prices move in opposite directions.
In the coming week, the markets digest data on the US trade balance, and also will monitor the upcoming IMF economic outlook and meeting of G7 finance ministers.
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