Sun, Sep 30, 2007 - Page 10 News List

US investors betting on sunnier times

PERSPECTIVE Wall Street racked up strong gains in the traditionally weak month of September on expectations the Fed rate cut would get the US economy back on track

AFP , NEW YORK

After another positive week for Wall Street, it appears investors are looking past the gloomy outlook for the US economy and betting on sunnier times after some short-term problems.

The market's surprising performance over the past week had the main indexes showing strong gains in the traditionally weak month of September, and for the third quarter.

The gains come against a backdrop of a worrisome economic picture as the housing market hits more turbulence and consumers are showing signs of buckling.

But in the week to Friday, the Dow Jones Industrial Average rose 0.55 percent to 13,895.63, edging closer to its all-time high of 14,000 hit on July 19.

The broad market Standard & Poor's 500 index managed a rise of just 0.06 percent to 1,526.75, while the tech-dominated NASDAQ jumped 1.13 percent to 2,701.50.

For this month, the broad US market was up 3.5 percent and showed a gain of 1.5 percent for the third quarter.

In the past week, the market was able to shake off disappointing news that sales of new US homes slid 8.3 percent last month to their lowest level in seven years, with prices falling to 2005 levels, another sign of the calamity in the housing market.

A separate report showed US consumer confidence slid this month to almost a two-year low amid weakening business and job market conditions. Some say this could mean weaker consumer spending, which accounts for two-thirds of US economic activity.

But analysts say many investors believe the US Federal Reserve's half-point rate cut on Sept. 18, and possibly more cuts in the coming months, will help the world's biggest economy weather the short-term storm.

"This equity market resiliency has come against darkening skies for the US economy," said Douglas Porter, economist at BMO Capital Markets.

"This week was awash with grim news on the housing front, including cascading prices and soaring unsold inventories, pointing to further price cuts and declines in building activity," he said.

But Porter said investors "seem to be looking past a further soft patch for US growth, focusing instead on the fact that global growth continues to thunder along."

Joel Naroff at Naroff Economic Advisors agreed.

"If the market is a forward-looking indicator, it's saying we will not go into recession, that we'll get through the soft spot and that the lower interest rates will help us pull through," he said.

Larry Wachtel, chief market analyst at Wachovia Securities, said stocks face some fresh challenges moving into the new quarter.

"The new month will bring the challenge of slowing corporate profitability," he said.

"After 14 quarters of double-digit earnings gains for the S&P 500, the second quarter fell just shy of the double-digit mark. However, third-quarter prospects are dimmer with Thomson Financial projecting gains of 4.5 percent," Wachetel said.

Fred Dickson, market strategist at DA Davidson, said investors would keep a close watch on earnings as well as economic data, including tomorrow's Institute of Supply Management survey of manufacturing and Friday's crucial report on the US labor market.

"Most portfolio managers are concerned about the degree to which the economy appears to have slowed, thus these data points will gain more attention than usual," he said.

"We continue to believe that October will be a pivotal month for the market this fall as investors digest third-quarter earnings and fourth-quarter and 2008 guidance. Our sense is that the market will be disappointed by the degree to which many companies will trim fourth-quarter guidance and their outlook for 2008," Dickson said.

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