US stocks may get a lift in the week ahead, as regulators are expected to name the first round of banks allowed to repay bailout funds. The move could feed hopes that the banking system is stabilizing further.
But widespread skepticism over the sustainability of the recent rally from 12-year lows in March remains as bears keep looking for signs of economic weakness.
The wild cards in the coming week include the jump in the price of oil, now near US$70 per barrel, and the leap in US Treasury bond yields, with the 10-year note’s yield near 4 percent.
Investors also will sift through a government report on last month’s retail sales and data on consumer sentiment for clues about the state of mind of consumers, whose spending accounts for two-thirds of US economic activity.
“From the market’s point of view, the repayment of TARP [Troubled Asset Relief Program bailouts] is a big positive in that it shows that private equity is available and capable of coming in and funding the banks,” said Marc Pado, US market strategist at Cantor Fitzgerald & Co in San Francisco.
But even though the repayment of money from the US$700 billion TARP is seen as an important psychological step, there are also concerns that the banks may repay the money too soon while selective repayments may stigmatize some lenders.
“The potential negative is that people start looking at it and saying these guys have been able to pay it back, but other people haven’t,” said Doug Roberts, chief investment strategist at Channel Capital Research in Shrewsbury, New Jersey. “There could be a concern that the government will have to go back in again.”
There is also concern that the repayment of TARP may rob the economy of money that could be lent to consumers and businesses.
The S&P 500 index is up nearly 40 percent since a hitting a 12-year closing low on March 9, largely on hopes of an economic recovery. But indexes have drifted since early last month as investors look for more catalysts to drive the market.
Stocks finished the week with gains, with the Dow Jones industrial average up 3.1 percent, the Standard & Poor’s 500 Index up 2.3 percent and the NASDAQ up 4.2 percent.
The Dow Jones Industrial Average rallied 3.1 percent in the week to Friday to 8,763.13, the best level in five months for the blue-chip index, which is now off just 0.15 percent for this year.
The NASDAQ climbed 4.2 percent to 1,849.42, leaving the tech-dominated index up 17 percent for the year and near its highest level since October.
The broad-market Standard & Poor’s 500 index rose 2.3 percent on the week to 940.09, up 4 percent for this year after hitting a seven-month high during the week.
The sizzling three-month rally has pushed up the Dow index by some 34 percent since lows hit on March 9, while the S&P index is up 39 percent and the NASDAQ 45 percent.
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