Stocks finish with a flourish on W Street

Published: Tuesday October 21, 2008

Stocks surged on Wall Street yesterday, pushing the Dow Jones industrial average back above the 9,000 level, as investors welcomed talk of a second economic stimulus plan and an improvement in key lending rates.

The Dow Jones industrial average (INDU) added 413 points, or 4.7 per cent according to early tallies. The Standard & Poor's 500 (SPX) index gained 4.8 per cent. The Nasdaq composite (COMP) added 3.4 per cent.

After the close, American Express reported quarterly earnings from continuing operations of 74 cents per share, topping forecasts of 59 cents and down from 94 cents a year earlier. The company reported revenue of US$7.2 billion versus forecasts for US$7.31 billion.

Investors cheered comments from Federal Reserve Chairman Ben Bernanke that suggested a second economic stimulus package could be up for discussion. Additionally, comments from Treasury Secretary Henry Paulson and an improvement in lending rates added heft to bets that the credit market freeze is starting to thaw.

But the volatility of recent weeks isn’t over, analysts said. Yesterday’s gains reflected the need for traders to take a break from last week's wild swings, if nothing else, said Dean Barber, president at Barber Financial Group.

He said that the huge Dow swings last week of sometimes 1,000 or more points in a single session - between the highs and the lows - have really worn people out.

In testimony before the House Budget Committee, Bernanke noted that “with the economy likely to be weak for several quarters and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate.”

The Bush administration said it was open to the idea. Congressional Democrats have previously said a second stimulus package is needed.

Shortly after Bernanke’s speech, Secretary Treasury Henry Paulson gave a statement that a “broad group of banks" is interested in participating in the government's plan to invest US$250 billion directly into lending institutions. Paulson also reiterated that the investments should eventually earn a good return for taxpayers.

These announcements helped propel Wall Street. But on a broader level, stocks were up because investors were starting to express optimism, said Dave Rovelli, managing director of US equity trading at Canaccord Adams.

He said investors were encouraged by a weekend cover story from financial weekly Barron's that suggested that the recession won't drag on as long as feared. However, the main factor restoring confidence was an improvement in lending rates over the past week, he said.

He added that the recent drop in Libor, a key bank lending rate, on both an overnight and three-month level, was critical: “We’re seeing that the government's efforts are starting to work,” Rovelli said.

The morning brought an improved report on the economy as well. The September index of leading economic indicators (LEI) rose 0.3 per cent after falling a revised 0.9 per cent in the previous month. Economists surveyed by Briefing.com thought LEI would fall 0.1 per cent.


Source: Trinidad Guardian Newspapers
http://www.guardian.co.tt/business3.html