Sun, Mar 18, 2012 - Page 10 News List

US outlook, stress tests boost markets

CONTINUED SURGE:Most major banks in the US passed the Fed’s stress tests, with the exception of Citigroup. Despite this, Citigroup’s shares jumped 7.3% on the week


Traders work in the S&P 500 pit of the CME Group’s Chicago Board of Trade in Chicago on Friday.

Photo: Bloomberg

A clear improvement in the US Federal Reserve’s economic outlook and a solid outcome of the Fed’s stress tests for major banks gave the markets another strong 2 percent-plus boost this week.

The major indices reached multiyear highs, the Dow breaking solidly through the 13,000-point barrier, the S&P 500 edging over 1,400 and the NASDAQ Composite plowing past 3,000 all in the same week.

By the close of trade on Friday, the Dow Jones Industrial Average was up 2.39 percent for the week to 13,232.62, a level last seen on Jan. 3, 2008.

The S&P 500 gained 2.43 percent to 1,404.17, its best level since May 2008.

The NASDAQ earned 2.24 percent in the week, closing at 3,055.26, its highest level since November 2000, when it was crumbling in the burst of the dot-com bubble.

While stocks appeared ready to drift all week despite the advances on the Greek bailout in Europe, an improvement in the Fed’s view of the economy on Tuesday gave traders a bit of reason to buy.

The US central bank slightly upgraded its outlook, saying the jobs market and consumer and business spending had improved since January.

However, the real burst in buying came near the end of Tuesday’s session when it leaked out that most of 19 big banks had passed the Fed’s tough stress tests for capital adequacy.

That sent bank shares soaring, helped as several banks subsequently announced dividend increases and share buybacks.

“Not one bank was ordered to recapitalize. That’s different from three years ago when they were all ordered to recapitalize,” Standard & Poor’s analyst Erik Oja said.

“And that’s very impressive with respect to European banks, which basically have to recapitalize,” he added.

Even rising were shares of Citigroup, the largest of four banks which failed the test and whose dividend plan was rejected by the Fed.

Citi declared the tests untransparent and unfair, which perhaps helped it put on 7.3 percent for the week.

Goldman Sachs’ shares also weathered the shock of a sharp attack on its attitude toward its customers by a resigning executive director in its London office.

Greg Smith said Wall Street’s most powerful investment bank had lost its way, “ripping off” customers for all it can get.

“I can honestly say that the environment now is as toxic and destructive as I have ever seen it,” he said in a column in the New York Times.

Goldman’s shares plummeted 3 percent on worries it would damage its reputation, but rebounded over the next two days for a solid weekly gain.

Apple was another big gainer in the week that it launched a new version of its hit iPad. It briefly topped the US$600 market after two key tech analysts boosted their price targets to above the US$700 line, before easing back for a 7.4 percent gain for the week, to US$585.57.

A handful of data releases, including a surprise downturn in the University of Michigan consumer confidence index, muddied the upbeat picture of the economy on Friday and put a hold on any more gains.

Analysts remained mixed on whether Fed Chairman Ben Bernanke’s extremely restrained view of the economy’s growth potential was excessively bearish or not.

“We are convinced Bernanke is reading the economic tea leaves accurately,” Chris Low of FTN Financial said. “The balance between economic negatives — three consecutive months of no growth in consumer spending, slowing demand for exports, slowing growth in business investment and less federal spending — outweigh the economic positives — faster job growth, a lower unemployment rate and fewer layoffs.”

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