Wall Street higher on hopes of credit recovery
October 20, 2008
NEW YORK ” A rising wave of optimism lifted Wall Street Monday, propelling the Dow Jones industrials up more than 400 points on more signs of a reviving credit market and support from Federal Reserve Chairman Ben Bernanke for further steps to aid the economy. All the major indexes finished with gains of 3 percent or more.
Investors who had sold furiously in recent weeks in response to immobile credit markets became more optimistic as bank-to-bank lending rates eased further. There’s also less demand for ultra-safe Treasury bills, another sign that the credit markets are gradually returning to a healthier state.
The improvement in lending rates helped temper concerns that tight credit will contribute to a prolonged recession, but Bernanke still warned that the economy is likely to be “weak for several quarters, and with some risk of a protracted slowdown.”
But he also told the House Budget Committee that a fresh round of government measures might help ease the country’s economic weakness. There were no details but the White House said it was open to ideas that Congress might put forth.
“The market liked what Bernanke had to say, and there were hints that he’s leaving the door open for further moves in terms of rate cuts or economic stimulus,” said Ryan Larson, head of equity trading at Voyageur Asset Management. “And, with credit easing in slow baby steps, the market has started to realize that this is going to be a process.”
Wall Street was also sifting through the first of hundreds of earnings reports expected this week, seeking clues about future business conditions. Among those reporting, oilfield services provider Halliburton Co. topped estimates, and CEO Dave Lesar told investors and analysts in a conference call, “We expect that any major macroeconomic disruptions will ultimately correct themselves.”
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Trading was orderly for much of the day, but the final hour again saw frenetic activity, this time to the upside, with the Dow rising nearly 140 points in the last 25 minutes. The market’s tone was clearly better than during the previous two weeks, when investors’ heightened anxiety about credit markets and the economy sent stocks plunging. The relative calm in Friday’s session, when the Dow fell 127, and Monday’s trading, had more investors feeling confident that the worst of the market’s losses was behind it.
Still, with back-and-forth trading a hallmark during recoveries from plunges in the past, analysts and investors were also expecting that Wall Street would be subject to volatile price swings for some time.
“We don’t have any sense if this kind of a run is sustainable,” said Phil Orlando, chief equity market strategist at Federated Investors. “We’re groping quite literally for a bottom right here, but I’m not going to discount that we won’t retest lows over the next couple of weeks.”
The Dow rose 413.21, or 4.67 percent, to 9,265.43. The blue chips’ gain were in line with a 4.68 percent gain registered Thursday, when the Dow jumped 401 points.
The rally marked the Dow’s 23rd triple-digit move in 26 sessions. Most sessions have brought losses, however, with 11 of the past 14 showing declines.
Broader indexes also rose sharply Monday. The Standard & Poor’s 500 index jumped 44.85, or 4.77 percent, to 985.40. The Nasdaq composite index rose 58.74, or 3.43 percent, to 1,770.03.
Despite the advances of recent sessions, the major indexes remain well below their peaks of a year ago. the Dow is down 34.6 percent, the S&P 500 is down 37 percent and the Nasdaq composite index is off 38.1 percent.
The credit markets were gradually responding to the series of bailout measures by governments around the world, including a joint U.S. and European plan to buy stakes in private banks to boost their lending. Demand for Treasury bills, regarded as the safest assets around, lessened Monday but remained relatively high in a sign that there was still much fear in the markets.
The three-month Treasury bill Monday yielded 1.12 percent, up from 0.82 percent late Friday. That’s better than the 0.20 percent of last Wednesday, and the first time it surpassed 1 percent in more than a week.