Wall Street focuses on the positive
Wall Street is focusing on the positive, with major stock indexes rising for a second day yesterday.
It was the first two-day stretch of gains since the Federal Reserve gave a timetable for throttling back its economic stimulus a week ago.
Even news that the economy grew at a much slower annual rate in the first quarter than previously estimated – 1.8% versus 2.4% – did not dampen the buying.
In fact, it persuaded some traders that the Fed could extend its easy money policies beyond next year, which would probably be a boon for the economy and the stock market.
The market’s gains were decisive. The Dow Jones industrial average jumped 149.83 points, or 1%, to 14,910.14.
All 10 sectors in the Standard & Poor’s 500 index were higher, led by health care and utilities.
Investors also seemed to realise that they dumped too many stocks last week, when they panicked after the Fed outlined plans on how it might eventually end its stimulus measures.
“The sell-off was a little bit overdone,” said David Coard, head of fixed-income sales and trading at Williams Capital Group in New York.
“Sometimes you’ve got to take a breather.”
The Standard & Poor’s 500 rose 15.23, or 1%, to 1,603.26. The Nasdaq composite index gained 28.34, or 0.9%, to 3,376.22. The rise in US stocks extended Tuesday’s rally, which was sparked by good reports on housing, manufacturing and consumer confidence.
The markets have been volatile for weeks, ever since Fed Chairman Ben Bernanke started hinting that a pullback in Fed stimulus programmes would start soon.
In the last 25 trading days, the Dow has ricocheted through 17 triple-digit swings, split almost evenly between ups and downs.
Still, some investors were already turning their attention away from the Fed and back toward company earnings. There they saw reason for caution, not optimism.
Analysts expect earnings to grow about 3%, though that is down from estimates as high as 15% a year ago, according to S&P Capital IQ. Revenue is expected to fall by 0.3%.
“We’re not seeing any significant bottom-line growth,” said Chip Cobb, senior vice president of BMT Asset Management in Bryn Mawr, Pennsylvania. “It’s all been cost-cutting measures.”
Tomorrow is the last trading day for the second quarter, which could also make the market’s moves erratic.
Money managers will be looking to get out of their holdings and book profits for clients before then.
