Monday 16 March 2009

Wall St sees no signs of bottom despite rally

Investors fear poor prospects for rest of year

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Guanyu said...

Wall St sees no signs of bottom despite rally

Investors fear poor prospects for rest of year

Reuters in New York
16 March 2009

Investors doubt that Wall Street’s best week since November means the stock market has found a bottom.

Although the Dow industrials advanced 9 per cent for the week and the S&P 500 rose more than 10 per cent from the close on March 6, investors still fear the same problems.

After the credit crisis shredded the financial system and markets worldwide, many question the health of banks and believe the United States economy will stay weak this year.

“Obviously, for a massive widespread rally, you are going to need more people comfortable, and I don’t think that happens until a plan is produced to address the banking issues,” said Peter Jankovskis, director of research at OakBrook Investments. “I don’t think you’re going to see a floor in this market until we get a comprehensive plan on the finance sector.”

Since January, it has largely been a case of one step forward, two steps back for markets, with rallies promptly being reversed as markets push lower. Stocks racked up their best week since November on Friday with a four-day winning streak, and while investors note that this is a positive sign, it does not necessarily mean the worst is over.

Banks led the advances as executives from Citigroup, Bank of America and JP Morgan Chase said that their banks had been profitable for the first two months of the year and attempted to soothe worries about the possibility of government nationalisation of the sector.

Financials will continue to set the market’s direction as investors await the results of government “stress tests” to determine banks’ health, as well as additional details on the Treasury Department’s plan to shore up the sector.

“I find it encouraging that people were willing to step into the market on the fundamental news that came out from Citigroup and Bank of America. It’s a sign that at least a few people out there are comfortable enough that the problems will be resolved,” Mr. Jankovskis said.

In the week ahead, investors will watch for any new methods the Federal Open Market Committee may use to bolster the weak economy.

With the fed funds rate target already near zero, analysts are expecting the Federal Reserve to hold rates steady on Wednesday.

Analysts and investors will be looking for signs of any other measures the Fed might take to loosen credit markets, such as buying up long-term US Treasuries.

A fresh round of data on inflation, manufacturing, housing and labour is expected to show a gloomy picture of the economy. Today, the Fed will release February readings on industrial output and capacity utilisation. Tomorrow, US producer price index and housing starts, both for February, are due.

On Wednesday, the US consumer price index for last month will be released. Economists expect that overall CPI rose 0.3 per cent, matching January’s gain. Core CPI, excluding volatile food and energy prices, is forecast to have edged up only 0.1 per cent last month, from a 0.2 per cent gain in January.

Last week, the benchmark S&P 500 shot up 10.7 per cent, making it the index’s third best week since the second world war. The Dow jumped 9.01 per cent, and the Nasdaq rose 10.6 per cent.

Market watchers worry that the ramp-up could turn out to be too much, too fast, as stocks’ ability to accumulate gains over time to build a solid base is considered a key characteristic of a meaningful rally.

Even with the week’s substantial gains, the Dow Jones industrial average is down about 18 per cent for the year so far. The Nasdaq composite index is down about 9 per cent, while the Standard & Poor’s 500 is off about 16 per cent. From its all-time high, hit in October 2007, the S&P 500 has lost about 52 per cent.

“A lot of investors understand that if they catch the bottom, the upside can be enormous. Rallies at this point may start to be really, really sharp. But people are nervous, so there is ample opportunity for sellers,” said Charles Lieberman, chief investment officer of Advisors Capital Management.

Pundits are also wary of calling a low in the midst of a situation that remains overwhelmingly negative: dismal economic data, accelerating job losses, tight credit markets and uncertainty over what steps US officials can take to rescue the economy.