Bruised and battered by the worst economic slump in memory, Wall Street has begun to look past the grim statistics toward a recovery, even if that seems far off, analysts say.
The market is coming off its best weekly performance since the week ending on Jan. 2, spurred by hopes that the economy will be healed by a giant economic stimulus plan and a separate banking stabilization plan in the works by US President Barack Obama’s administration.
The Dow Jones Industrial Average rallied 3.5 percent in the week to Friday to 8,280.59 and the tech-heavy NASDAQ vaulted 7.8 percent to 1,591.71.
The broad-market Standard & Poor’s 500 jumped 5.17 percent to 868.60.
The market was able to shrug off the latest grim economic data that showed 598,000 jobs lost last month and the unemployment rate at a 16-year high of 7.6 percent.
The gains were “due to the expectations that we are going to get a massive stimulus package,” Lindsay Piegza at FTN Financial said.
“There is a lot of optimism in the market in terms of government policies and in government funding coming in and boosting the economy,” Piegza said.
Some investors took comfort in data showing a slower pace of contraction in both the manufacturing and service sectors, offering a hint of a bottoming in the economic crisis.
Analysts expect an economic stimulus to emerge from Congress that will help consumers and business recover from the horrific slump.
“A plan, even if not the best one, will help boost confidence that the economy will recover sooner rather than later,” Al Goldman at Wachovia Securities said.
“The new package will provide some tax relief for middle-income families via payroll tax cuts, which will go into effect almost immediately,” economist Diane Swonk at Mesirow Financial said. “The package also has some tax incentives to buy homes and autos, which could spur some demand in our hardest-hit industries. Tax cuts for businesses should help mitigate the magnitude of job losses in the second quarter.”
Avery Shenfeld, senior economist at CBIC World Markets, said the other key element is a banking stabilization plan expected tomorrow from US Treasury Secretary Timothy Geithner.
“While the banking plan is unlikely to leave anything more than crumbs for shareholders of institutions needing the greatest relief, it’s a key step in restoring confidence for their credits and lending capacity for the economy,” Shenfeld said. “These announcements will overshadow more bad news from retailers and exporters.”
Paradoxically, data showing the crisis intensifying raised some hopes the economic crisis will end sometime this year.
“Sharp recessions tend to have sharp recoveries, that’s the good news,” Robert Brusca at FAO Economics said. “I see some evidence that the severe phase of the cycle is playing out. Once we turn the corner, growth can return faster than most are saying.”
Bonds fell. The yield on the 10-year Treasury bond increased to 2.979 percent from 2.844 percent a week earlier, and that on the 30-year bond climbed to 3.683 percent from 3.603 percent. Bond yields and prices move in opposite directions.