Stocks End Erratic Week With Solid 5-Day Gains

By Renae Merle
Washington Post Staff Writer
Saturday, October 18, 2008

Stocks tumbled again yesterday but posted one of their best weeks in years despite growing evidence that the country is slipping into a recession.

The Dow Jones industrial average closed down 1.41 percent, or 127.04 points, at 8852.22. The Standard & Poor's 500-stock index was down 0.62 percent, or 5.88 points, to close at 940.55, and the tech-heavy Nasdaq composite index fell 0.37 percent, or 6.42 points, to close at 1711.29.

It was a modest end to a week marked by sudden sell-offs and massive rallies: It started Monday with a historic 936-point gain on the Dow as the Treasury moved to make direct investments into major banks. Most of those gains were wiped out including a 733-point loss on Wednesday. The whiplash continued Thursday when the Dow surged in the last hour of trading, closing up 400. For the week, the Dow rose 4.8 percent -- its best weekly performance since March 2003. The S&P 500 and Nasdaq were up 4.6 percent and 3.8 percent, respectively.

It was a turnaround from last week, when the market had its worst week in history with the Dow and S&P both losing 18 percent of their value.

This week, investors have swayed from cheering the government's efforts to stabilize the financial system to running from gloomy economic data and corporate balance sheets weighed down by the financial crisis. Yesterday, analysts said, traders digested more evidence of the housing slump and slipping consumer confidence that was offset at some points by bargain hunters who are optimistic that the market has reached its bottom.

"I feel like people are in better moods and that they have a certain knowledge that the world is not coming to end," said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel. "They are still treading softly; they are sticking a toe in. . . . But they are also still waiting for the other shoe to drop."

The Commerce Department said new-home construction fell to a seasonally adjusted annual rate of 817,000, a 6.3 percent decline from the month before and more than 31 percent below last September. It is the lowest monthly rate for home starts since January 1991.

Requests for building permits fell to a seasonally adjusted annual rate of 786,000, an 8.3 percent decline from August and more than 38 percent below the corresponding month a year ago. Building permits are considered a barometer of future activity.

"Given the ongoing problems in the credit markets, the development community should brace itself for a number of months of record-low activity and consolidation," said Joseph Brusuelas, chief U.S. economist at Merk Investments.

The housing numbers add to the data -- retail sales, durable goods, industrial production -- that indicate that the economy took a sharp turn for the worse in September, said Patrick Newport, U.S. economist for Global Insight. Making matters worse, the average rate has jumped to 6.46 percent for 30-year, fixed-rate mortgage, according to Freddie Mac. "These reports do not incorporate the effects of October's financial meltdown," Newport said.

Consumer confidence suffered its steepest monthly drop on record in October, according to a survey released yesterday by Reuters/University of Michigan Surveys of Consumers. The confidence index fell to 57.5 in October from 70.3 in September, worse than economists' expectations.

"Consumer sentiment is down for the count and will be for the foreseeable future," Brusuelas said.

Crude oil prices, which have been driven down in recent weeks by the economic downturn and slowing demand, inched up yesterday. Crude oil rose $2, or 3 percent, to $71.85 a barrel on the New York Mercantile Exchange.

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