Wall Street finally found something to cheer about as the holiday season starts, offering hope that the battered stock market has turned a corner.
Rebounding from multiyear lows, the Dow Jones Industrial Average surged 9.73 percent in an abbreviated week to end Friday at 8,829.04, after a five-session win streak.
The tech-heavy NASDAQ rallied 10.92 percent to 1,535.57, while the broad-market Standard & Poor’s 500 came back from the prior week’s 11-year low to gain 12.03 percent to 896.24.
For some, the rally meant the market has managed to successfully hold above key lows, in a positive sign for an ailing Wall Street.
The coming week provides investors with another gut-check and more economic and corporate data likely to be gloomy.
Monthly sales from automakers, which have been dropping precipitously, will be closely followed by the market.
Although the economic news continues to be grim, many investors are looking past the current turmoil seeing signs of an easing of a crippling credit crunch that could mean a recovery for the economy and markets next year.
Ed Yardeni at Yardeni Research said the market was encouraged by the latest initiative by the US Treasury and Federal Reserve, allowing the Fed to buy up to US$600 billion in mortgage securities and pump US$200 billion into securities backed consumer credit.
Also helping was the government rescue of troubled bank Citigroup, which got a fresh capital injection of US$20 billion and a guarantee on US$300 billion in troubled mortgage assets.
“Investors may believe that the Treasury has finally stumbled on a good idea. Instead of buying troubled assets, why not just slap a government guarantee on them and ring-fence them?” Yardeni said. “If the government guarantees can deliver a good Santa Claus rally for the financials and the overall market over the rest of the year, that’s OK by me.”
The market has also been encouraged by US president-elect Barack Obama’s efforts to put in place a strong economic team to tackle the crisis when he takes office in January.
Al Goldman at Wachovia Securities said that “Obama’s selection of a very experienced and center-to-right economists for his administration hit a market that was short term very oversold.”
Some said the market is close to a bottom if that has not already been reached, with selling pressures exhausted after a dismal year that has pushed the broad market down nearly 40 percent.
“The economic news is dreadful, as it should be as we’re staring into the abyss of a recession,” Philip Orlando at Federated Investments said. “But the economic news should get progressively less dreadful as we proceed through the first half of 2009, as the fiscal and monetary policy stimulus begins to kick the economy back into gear.”
Based on this assumption, Orlando said the market may be poised to extend its gains.
Bonds rose sharply in the past week, with yields falling to unprecedented lows amid signs of easing credit conditions.
The yield on the 10-year Treasury bond tumbled to 2.957 percent from 3.167 percent a week earlier, and the 30-year Treasury bond yield slid to 3.487 percent from 3.663 percent. The lower yields reflect higher bond prices.
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