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Stocks Keep Climbing Thursday 03/30 09:08
Stocks are rising again on Thursday as a bit more fear evaporates from Wall
Street.
NEW YORK (AP) -- Stocks are rising again on Thursday as a bit more fear
evaporates from Wall Street.
The S&P 500 was 0.6% higher in early trading. It's on pace for its fifth
gain in the last six days, and its recent roll has it up for the month after
struggling in earlier weeks on worries about whether the banking system was
cracking under the weight of higher interest rates.
The Dow Jones Industrial Average was up 152 points, or 0.5%, at 32,870, as
of 9:40 a.m. Eastern time, while the Nasdaq composite was 0.7% higher.
Forceful actions by regulators worldwide have helped build confidence that
the current trouble for banks won't torpedo the economy like the 2008 financial
crisis did. Traders have also begun betting heavily that the Federal Reserve
will have to cut interest rates soon. Such cuts could offer huge relief after a
year of relentless hikes to rates, and they also tend to act like steroids for
markets.
To be sure, all the recent ebullience has some professionals on Wall Street
wary.
"Markets are pricing the best of both worlds: a recession that brings
inflation down rapidly and keeps rates low, yet one where corporate earnings do
not fall sharply," according to analysts at Barclays led by Ajay Rajadhyaksha,
global chairman of research.
They are skeptical and think both bonds and U.S. stocks look too expensive.
Since Silicon Valley Bank earlier this month became history's second-biggest
U.S. bank failure, Treasury yields in the bond market have tumbled as traders
built bets the Federal Reserve would have to take it easier on interest rates.
The Fed has pulled its key overnight rate to a range of 4.75% to 5%, up from
virtually zero at the start of last year, to drive down inflation. High rates
can do that, but only by taking a blunt hammer to the entire economy. They also
drag down prices for stocks and other investments.
The bet on Wall Street has been that the Fed may cut rates as soon as this
summer, to release some of the pressure built up on the economy and banks. That
has caused the price to soar and the yield to tumble for the two-year Treasury,
which tends to move on expectations for Fed action.
Its yield plunged from above 5% earlier this month, when it was at its
highest level since 2007, back below 3.60% last week. That's a massive move for
the bond market. It rose Thursday to 4.15% from 4.11% late Wednesday.
Expectations for easier rates in turn have helped to buoy the Big Tech
stocks that dominate the S&P 500 and other indexes. That's because tech and
high-growth stocks are seen as some of the biggest beneficiaries of low rates.
But many professionals on Wall Street are saying the Fed would likely cut
rates only if a more serious recession for the economy were on the way, one
that would pull down corporate earnings more sharply than what's already
expected.
The Fed has indicated it plans to raise rates one more time before holding
steady through the end of this year. While it's acknowledged that the turmoil
for banks could almost act like a rate hike on its own, inflation is still too
high for comfort.
"In sharp recessions -- which seems to us the only way to justify bond
market pricing, given how high US inflation is -- corporate earnings easily
drop 30-35%," Rajadhyaksha and his Barclays colleagues wrote in a report. They
added that Big Tech stocks would not be immune from such a downturn.
Nevertheless, the increasingly dominant force on Wall Street seems to be
calm.
A measure of nervousness among stock investors on Wall Street on Thursday
touched its lowest level since before a mad dash by Silicon Valley Bank
customers earlier this month caused its failure and sparked the harsher
scrutiny on banks globally.
Almost all of the financial stocks in the S&P 500 rose, as well as some of
the banks recently seen as most at risk of seeing an exodus of depositors
similar to Silicon Valley Bank's.
A report on Thursday showed that slightly more U.S. workers applied for
unemployment benefits last week than expected. That could be a sign of
increased layoffs, but the number still remains very low compared with history.
In a separate report, the government revised down its estimate for how much
the U.S. economy grew during the last three months of 2022. But it also still
showed growth.
"Today's data may have some investors more willing to see the light at the
end of the tunnel for rate hikes but remember a multitude of data will be
released before the Fed's next decision," said Mike Loewengart, head of model
portfolio construction at Morgan Stanley Global Investment Office.
On Friday, the Commerce Department issues its February report on consumer
spending. That's the heart of the U.S. economy. Perhaps more importantly, the
report will also give the latest update on the measure of inflation that Fed
policymakers prefer to use.
"And we have just seen how quickly the market can be disrupted by unplanned
turmoil," Loewengart said, "so investors should remain alert."
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