Hopes for Federal Action Spark Rally
Saturday, February 7, 2009
Investors shrugged off fresh signs of the country's economic woes yesterday and sent stocks surging in anticipation of a financial rescue plan and congressional action on stimulus legislation.
The Dow Jones industrial average climbed 2.7 percent, or 217.52 points, to 8280.59, while the Standard & Poor's 500-stock index gained 2.7 percent, or 22.75 points, to close at 868.60. The tech-heavy Nasdaq composite index closed up 2.9 percent, or 45.47 points, at 1591.71.
Stocks ended the week in positive territory despite a series of poor economic data. The Dow and S&P were up 3.5 percent and 5.2 percent, respectively. The Nasdaq climbed 7.8 percent.
Reports this week showed that construction spending fell more than expected in December and that retailers continue to suffer through a steep drop-off in sales. The drumbeat of negative news was topped yesterday with a Labor Department report that employers shed 598,000 jobs in January, the largest one-month job loss since December 1974. The jobless rate jumped to 7.6 percent, from 7.2 percent. The data were worse than analysts expected.
But investors were focused on progress on a government plan to revive the financial sector set to be unveiled Monday and were also watching the Senate's continuing debate on a massive economic stimulus package. The unemployment numbers, which show the country has lost 3.6 million jobs since the recession began in December 2007, could put more pressure on Congress to pass the stimulus package, analysts said.
"A convincing plan to create jobs and resolve toxic assets on bank balance sheets would assuredly trump today's job losses," said Michael Woolfolk, a senior currency strategist for the Bank of New York Mellon. "However, if the new stimulus plan does not produce the jobs it is intended to, the U.S. and global economy could be facing a far worse scenario in 2010 than most players are anticipating."
Added Nigel Gault, chief U.S. economist for IHS Global Insight: "Unfortunately, the downward momentum in the economy is so steep that it is hard to see how the [stimulus] package can kick in quickly enough to make much difference to 2009."
Yesterday's rally was led by the battered financial sector. After reaching a more than 20-year low this week, Bank of America climbed 27 percent yesterday, to $6.13 a share. J.P. Morgan Chase and Citigroup were up 13 percent and 11 percent, respectively. They had the biggest gains on the Dow.