A resurgent Wall Street faces a challenge in the coming week with results of “stress tests” of the banking system and unemployment data expected to reveal more massive job losses.
But, despite expectations of bleak news, some analysts say investors are looking further ahead toward recovery from the deep recession.
“Economic growth appears set to turn into positive territory near midyear, in line with our forecast,” Barclays Capital economist Dean Maki said, arguing that the downward spiral in financial markets and economy appears to be ending.
“One of the regularities of the business cycle is that financial markets improve before the economy, as investors look ahead to improving earnings,” he said. “This market improvement in turn helps the economy to recover by lowering borrowing costs for businesses and bolstering confidence. This positive feedback loop appears to be in place now.”
The main indexes resumed their upward trend in the past week, as the broad market rose for the seventh of the past eight weeks.
The Dow Jones Industrial Average climbed 1.68 percent for the week to 8,212.41, and has surged a stunning 25 percent since lows in early March.
The technology-heavy NASDAQ composite added 1.47 percent to 1,719.20 on the week and the broad-market Standard & Poor’s 500 index increased 1.3 percent to 877.52.
The market began this month on a positive note after last month produced powerful gains, lifting the Dow 7.3 percent, the NASDAQ a hefty 12.3 percent and the S&P by 9.4 percent.
One key for the market in the coming week will be the release of information about the government’s stress tests of 19 major banks to determine if they need additional capital.
Authorities are expected to release results on Thursday.
Reports suggest at least some of the banks may be short on capital, crimping their ability to lend and fuel economic growth under an adverse economic scenario.
The US government’s report on Friday on unemployment last month will provide an indication if the economy can regain momentum. If job losses accelerate, consumer spending and capital investment may fall further, imperiling a recovery.
Bonds extended their losses on the shift to equities in the past week. The yield on the 10-year US Treasury bond rose to 3.174 percent from 2.996 percent a week earlier and that on the 30-year bond increased to 4.088 percent from 3.876 percent. Bond yields and prices move in opposite directions.
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