Amid a heady rally in anticipation of an economic rebound, Wall Street faces a gut check in the coming week with data on the US employment market expected to show still-grim conditions.
The US equity market has risen sharply for three consecutive weeks in a surprising rebound fueled in large part by upbeat corporate results and encouraging economic data, bringing the indexes to highs for this year.
Yet debate persists on whether this is a bear market rally or the beginning of a recovery for the market and the economy.
The Dow Jones Industrial Average rose 0.86 percent in the week to Friday to 9,171.61, capping a three-week gain for blue-chips of 12.5 percent and ending last month with a stunning 8.6 percent advance.
The broad-market Standard & Poor’s 500 index added 0.84 percent to 987.48 and the tech-dominated NASDAQ increased 0.64 percent to 1,978.50.
Over the first seven months of the year, the S&P is up 9.3 percent and the NASDAQ has rallied 25.4 percent, while the Dow is up a more modest 4.5 percent.
Analysts say investors are sensing better times ahead, and are putting cash back to work in the stock market.
“The stock market was deeply depressed back in March, and thus the preconditions for a rally were very much in place,” Al Goldman at Wells Fargo Advisors said.
“The economic news started to be ‘less bad’ — a nice change — but the big reason for the market rally has been corporate earnings. Second-quarter earnings have come in well ahead of projections, which increased confidence that our economy was close to the end of the recession. And lately some economic data improved from ‘less bad’ to ‘much better,’” Goldman said.
US President Barack Obama said recently he saw “the beginning of the end” of the recession, with job losses easing and many other indicators improving. A number of analysts agree.
The latest report on GDP showed a 1.0 percent annualized drop in economic activity in the second quarter. It was a fourth consecutive decline but far better than the 6.4 percent drop in the first quarter and indicated momentum may be turning.
In addition to employment figures, the coming week features data on personal income and spending and a survey of the manufacturing sector by the Institute of Supply Management.
Bonds firmed in the past week. The yield on the 10-year Treasury note eased to 3.601 percent from 3.670 percent a week earlier and that on the 30-year bond fell to 4.311 percent from 4.555 percent.
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