Stocks may rally anew on Fed's acts
NEW YORK (Reuters) - Bolstered by the Federal Reserve's aggressive liquidity action, stocks could extend their solid rally next week even in the face of still weak consumer and housing-related data.
Thursday, the Dow Jones industrial average .DJI soared 261.66 points, or 2.16 percent, to end at 12,361.32, capping one of the most volatile weeks in U.S. financial market history. The Standard & Poor's 500 Index .SPX also enjoyed ample gains at the end of a holiday-shortened week, climbing 31.09 points, or 2.39 percent to end the week at 1,329.51. The Nasdaq Composite Index .IXIC jumped 48.15 points, or 2.18 percent, to close at 2,258.11.
"This will be the bottom," said Mark Zandi, chief economist and co-founder of Moody's Economy.com. "We got an incredibly aggressive Fed and three to five years from now, we will realize that this was the start of a bottoming process."
Stock investors already have been quick to sniff that out.
For the week, the Dow jumped 3.43 percent, the S&P 500 rose 3.21 percent and the tech-heavy Nasdaq Composite gained 2.06 percent.
Next week's barrage of economic indicators will include home sales, durable goods orders, consumer confidence and spending, GDP and some widely watched gauges of inflation.
But investors are likely to shake off these readings.
"There's a lot of bearishness built into expectations, so the markets could respond positively if we get any better-than-expected news from these economic reports," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management, which manages $22.5 billion.
Overall, it was the Fed's aggressive moves that have made investors increasingly confident about the stability of the markets.
"What the Fed did on multiple fronts will be an important moment in time for equity investors," Wirtz said. "The Fed was trying to blunt what could have been a snowballing effect of a lack of faith in the financial system," he said.
FINANCIALS FLY, AND SO WILL STOCKS
Sunday, the Fed brokered a deal for JPMorgan Chase & Co. (JPM.N) to take over Bear Stearns BSC.N, but it also dusted off a Depression-era rule to let securities firms borrow directly from the Fed through its discount window, usually reserved for commercial banks.
Now any bank that needs cash can go directly to the Fed window and exchange all kinds of collateral, such as mortgage bonds, for highly liquid government securities. With those Treasuries, banks then tap the $4.5 trillion repurchase market to exchange these for short-term cash loans. That money can shore up balance sheets depleted by the plunge in prices of mortgage-backed securities and other risky investments.
That's not all.
On Tuesday, the Fed cut interest rates by three-quarters of a percentage point, the sixth time it has slashed its fed funds rate target for overnight bank loans, to 2.25 percent. Continued...
