Wall Street embraces fragile recovery
With shaky conviction, Wall Street investors are starting to come out from their shell in anticipation of global credit squeeze easing and a skirting of a major US economic downturn.
Over the week to Friday, the Dow Jones Industrial Average gained 1.29 percent to 13,058.20. The blue-chip index now has clawed back most of its losses from a dismal start to 2008 and is down just 1.56 percent for the year.
The Standard & Poor's 500 broad-market index advanced 1.15 percent on the week to 1,413.90, moving past a key resistance level of 1,400 and limiting its loss for the year to 3.7 percent.
The technology-laden Nasdaq composite rallied 2.23 percent for the week to 2,476.99.
In an action-packed week, investors learned that the US economy did not contract in the first quarter of 2008 but expanded at a 0.6 percent pace, avoiding the kind of steep decline some had feared.
The Federal Reserve meanwhile cut its base lending rate a quarter point to 2.0 percent while giving what analysts said was a tentative signal it would not go lower barring a worsening economy.
Finally, data showed the US economy lost 20,000 jobs in April, significantly fewer than expected, in a sign that the labor market and overall economy may be holding up better than feared.
"Make no mistake, there is still a rough road ahead for the US economy," said Avery Shenfeld, economist at CIBC World Markets.
"Still, investors are paid to look ahead, and on a broad range of fronts, we're seeing the early stages of a flight away from safety."
Shenfeld said investors are moving away from "fear" investment such as commodities and US Treasury bonds and betting on the stock market in hope of economic stability if not recovery.
"In the blink of an eye, it seems like a lot of seemingly one-way trends have suddenly reversed course," said Douglas Porter, economist at BMO Capital Markets.
"Oil, gold, and wheat prices have all simmered down considerably in recent days after spiking to record highs earlier this year. This partly reflects a steady recovery in the US dollar, which has bounced off record lows versus the euro, as the Fed looks to have stopped slashing rates for now."
Linda Duessel at Federated Investors said a number of factors still are weighing on the stock market, including near-record energy costs and home prices that are falling at an alarming rate. Consumer confidence remains weak and inflation appears to be on the rise as well.
"For stocks to move up in earnest much from here, we probably will need a catalyst," she said.
"One would be a lasting decline in oil prices sufficient to provide consumers with both the inclination and means to purchase discretionary items ... Tax rebates are another potential catalyst."
The government last week began sending out the first tax rebates as part of a 168-billion-dollar economic stimulus to boost consumer spending, the biggest portion of US economic activity.
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