Print

Mail

wiki links

NYSE shakes off torpor to surge to multi-year highs

Just as things were starting to look bleak on Wall Street, the stock market broke out of its torpor and surged to fresh multiyear highs.

In the best week of the year for the overall market, the blue-chip Dow Jones Industrial Average climbed 1.84 percent to 11,279.65 and the broad-market Standard & Poor's 500 index added 2.0 percent to 1,307.25. Both indexes reached their highest levels since May 2001.

The tech-heavy NASDAQ composite rallied 1.96 percent for the week to 2,306.48 on Friday, its best level since mid-January

Some strategists say the rally still has legs amid optimism that the economy is cooling enough to allow the US Federal Reserve to end its cycle of interest rate hikes.

The latest economic data helped investors shake off persistent concerns about rising inflation that will lead the Fed to push rates aggressively higher, which could eventually choke off economic and profit growth.

"Economists are fairly sanguine about the outlook for the economy over the next year, despite prospects for a slowdown in the second half of the year," said Diane Swonk, chief economist at Mesirow Financial.

"The sense is that the economy would benefit from a mid-cycle slowdown, which would alleviate inflationary pressures and provide the economy with a second wind to carry it through 2010," she said.

The most recent data showed US consumer prices rose only 0.1 percent in February thanks to a moderation in energy costs. The core index of the consumer price index (CPI), excluding food and energy, also rose 0.1 percent.

This means the market is scaling back expectations for higher interest rates, the chief worry for the bond market and the stock market in recent weeks.

The market now believes the US Federal Reserve, which has pushed its base rate up to 4.5 percent in 14 quarter-point increments, may be close to ending its cycle of increases.

An American Bankers Association panel of economists said that it sees the federal funds rate moving no higher that 5 percent by mid-year.

"The balance of risk is shifting from inflation to slower growth," said Robert McGee, chairman of the panel and chief economist at US Trust Company.

Still, the recent stock market advance has suprised some who see the mood of investors as pessimistic amid a host of concerns from terrorism to oil prices to protectionism -- evidenced with the recent row over the takeover of US ports operations by a Dubai company.

Bob Dickey at RBC Dain Rauscher said he sees further gains for the markets despite the apparent pessimistic mood of investors.

The bond market steadied as interest rate jitters subsided.

The yield on the 10-year US Treasury bond fell to 4.674 percent from 4.755 percent a week earlier and that on the 30-year bond eased to 4.717 percent from 4.742 percent. Bond yields and prices move in opposite directions.
This story has been viewed 1349 times.