Money flow into areas entailing more risk

Markets Rise Despite Report
Daniel Acker/Bloomberg News

By JACK HEALY
Published: February 6, 2009

Not even the loss of 598,000 jobs could dampen Wall Street’s soaring mood on Friday. In a second day of gains, stock markets surged as investors waited for the federal government to detail its latest plans to shore up the banking system.

With Friday’s rally, the major indexes posted their first winning week in a month, and the technology-heavy Nasdaq composite gained enough to recoup its losses from last month, ending in positive territory for the year.

But some analysts questioned whether the Treasury Department’s expected announcement on Monday would be enough to meet investors’ expectations and whether stocks would fall back if the government’s plans turned out to be disappointing.

“It’s clear investors want to see something bold, something dramatic and something that is viable,” said Quincy Krosby, chief investment strategist at The Hartford. “We’ve had all these ad hoc, partial solutions. They don’t work, and then the market gets depressed. We’ll see if this is the one. We’ll see.”

On Friday, the Dow Jones industrial average gained 217.52 points, or 2.7 percent, to close at 8,280.59. The broader Standard & Poor’s 500-stock index rose 22.75 points, or 2.69 percent, to 868.60, and the technology-heavy Nasdaq composite index rose 45.47 points, or 2.94 percent, to 1,591.71.

Crude oil prices fell a dollar to settle at $40.17 a barrel in New York.

Analysts said they were cheered that financial markets seemed to shrug off a government report showing that unemployment climbed to 7.6 percent in January as the recession deepened, a sign the job market was still far from hitting bottom.

“It’s a good sign that we’re trading up in the face of bad news,” said Ed Hyland, global investment specialist at JPMorgan Private Bank. “That’s one of the signs that you look for in the bottoming of a bear market.”

Although the statistics were grim, the so-called whisper numbers representing the most pessimistic estimates on Wall Street guessed that unemployment could have spiked to 8 percent last month, given the mass layoffs announced by employers.

“It’s this paradigm: not as bad as it could’ve been is the new good,” said Art Hogan, chief market analyst at Jefferies & Company.

Analysts pointed to another positive signal: Congress appears to be making progress toward passing an economic stimulus package after Senate negotiators pared down a nearly $900 billion package to about $780 billion.

Investors snapped up distressed bank stocks like they were items on a bargain table and bid up basic-materials companies and shares of General Electric, Home Depot and Caterpillar. Retailers, whose shares have been hit by falling profits and reduced outlooks for 2009, rebounded on Friday.

Depressed bank stocks surged. Citigroup, Wells Fargo and JPMorgan Chase each posted double-digit gains, and Bank of America rose nearly 30 percent, rebounding to $6.13 a share in regular trading.

The broad rally lifted even companies that reported pessimistic earnings forecasts. In New York, shares of Toyota rose slightly to $69.38 after the automaker said it expected to post a loss for the fiscal year ending March 31, its first ever.

Shares of the Ford Motor Company and General Motors were flat.

Carmakers in the United States and abroad have been hammered by plummeting sales as financing becomes more difficult and consumers curtail their spending. This week, the Big Three automakers reported that new-vehicle sales fell 37 percent in January, their worst month in decades.

The price of Treasury debt fell as investors looked for higher returns on their money and stormed back into equities. The Treasury’s benchmark 10-year note fell 22/32, to 106 12/32, and the yield, which moves in the opposite direction from the price, was at 2.99 percent, up from 2.91 percent late Thursday, well above its December low of 2.06 percent.

Treasury yields plunged last year as losses mounted in the stock and bond markets and shaken investors rushed to find safe investments, but interest rates on short-term and long-term Treasury debt have crept higher in the last few weeks as the credit markets recover and on anticipation of huge government spending and borrowing.

Other barometers of the credit market were stable.

The London interbank offered rate, a measure of how much banks charge each other to borrow money, was little changed at 1.2 percent. The so-called TED spread, which increases as investors become more cautious about lending money, was 0.97 points, unchanged from Thursday.

“It doesn’t sound like a lot, but that’s the beginning of a very significant shift in investor appetites,” said Marc D. Stern, chief investment officer of the Bessemer Trust. “We’re seeing money flow into areas entailing more risk. There’s fear out there, but I think it’s increasingly being mitigated by the sense that there’s money to be made.”

http://www.nytimes.com/2009/02/07/business/07markets.html?ref=business