Wall Street is seeing more economic “green shoots,” helping fuel its extended rally as investors grow more confident in a recovery from recession.
The release of the so-called “stress tests” on US banks with no major surprises has also eased fears about a financial system meltdown that could deal a further blow to a weak economy.
“The green shoots are sprouting fast and furious these days,” said Sal Guatieri, economist at BMO Capital Markets, citing a string of better-than-expected economic reports. “The recent stream of less-bad data suggests that, at the least, the economy is no longer in freefall, and is likely bottoming. If it is the latter, then the historical record suggests a recovery can’t be too far off.”
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The optimism helped push up the main US market indexes in the past week, the eighth weekly gain in the past nine weeks and a sizzling 37 percent rally for the broad market since lows in early March.
The Dow Jones Industrial Average of blue-chips leapt 4.4 percent in the week to Friday to end at 8,574.65, and is up 30 percent from its low on March 9.
The technology-laden NASDAQ composite advanced 1.1 percent to 1,739.00 and the broad-market Standard & Poor’s 500 index vaulted 5.9 percent over the week to 929.23.
Banking shares led the rally with a stunning 33 percent weekly gain for the S&P bank index.
Liz Ann Sonders, chief market strategist at Charles Schwab & Co, echoed the “green shoots” theme first evoked by US Federal Reserve Chairman Ben Bernanke.
“Much is being made of the ‘green shoots’ story that the economy, if not in recovery mode, is in less dire shape than it was late last year,” she said. “With each passing day, the idea that a recovery is forming is gaining credibility.”
She argued that if the data continue to improve, “we may already be out of the ‘great recession.’”
The market has found a silver lining in what would normally be bleak economic news. The US labor market lost 539,000 jobs last month, but the pace of layoffs is slowing appreciably, fueling hope that the economy is on the mend.
Joel Naroff at Naroff Economic Advisors said the downward spiral of the economy and financial markets appears to be giving way to newfound confidence.
“As long as we continue to see the silver lining in the black clouds that overhang the data, then confidence will build,” he said. “It does look as if we are falling more slowly and we are likely to hit bottom reasonably soon, at least when it comes to economic growth.”
Aaron Smith at Moody’s Economy.com said the stress tests of the major US banks, showing a need for a capital boost of US$74.6 billion, offered a “reassuring picture.”
But the labor market, Smith said, needs to improve to keep the economy from relapsing.
Bonds were the main victims of the stock rally. The yield on the 10-year US Treasury bond jumped to 3.293 percent from 3.174 percent a week earlier and that on the 30-year bond leapt to 4.274 percent against 4.088 percent. Bond yields and prices move in opposite directions.
Also See: US shed 539,000 jobs last month
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