NEW YORK (AP) — The start of a new week on Wall Street has investors wondering whether the stock market is indeed recovering after rallying in response to the Federal Reserve's intervention on Friday, or whether that advance was a one-day reprieve from weeks of losses.
And many investors will be seeking buying opportunities.
Alfred Chiaraluce is trying to think like a pro and look for bargains.
The 55-year-old bank worker from Woburn, Mass., avidly follows the markets to guide him in buying stocks and bonds. Mr. Chiaraluce expects the market's volatility of the past month will prove fleeting, given Wall Street's historic cyclical tendencies.
"I'm actually thinking about buying. Next time the market dips, I've got my eye on a couple of stocks I want to pick up," he said, citing Apple Inc. as one potentially good investment.
But investing more money in the market or even making changes to a portfolio is difficult particularly with the up-and-down ride investors have taken lately: being burned by a series of triple-digit drops in the Dow Jones industrials and then relieved at week's end by the sense that the Fed, which lowered its discount rate Friday, was finally feeling their pain.
Now, Wall Street will try to determine whether Friday's rebound, when the Dow rose about 230 points, means it is regaining its foothold or whether it is due for further upheaval.
In any case, the debate has changed. A week ago, investors were going back and forth about how widespread the fallout would be from mortgage defaults and tighter overall credit, in part because the Fed had weighed in and didn't seem alarmed. Investors still will be trying to calculate the fallout this week; the question now is whether the continuum of news about credit problems will have a further effect on Wall Street and what the Fed will do about it.
Some market observers are grumbling that the Fed was easing the pain of investors who made risky bets on mortgages made to borrowers with weak credit. Others no doubt will be looking for the Fed to do more — including lowering the more important federal funds rate after nearly 14 months of leaving it unchanged.
Some are hoping the Fed might act again before its Sept. 18 meeting as it did Friday, when it cut the discount rate to 5.75 percent from 6.25 percent. The discount rate covers loans the Fed makes to banks, while the fed funds rate affects interest on everything from credit-card debt to home loans.
The Fed's latest move was an acknowledgment that the concerns about exotic mortgage investments and access to credit had spilled over into the rest of the market and were hurting regular investors, not just institutional players, and that this was posing a threat to the overall economy.
Although he likely took some licks, Mr. Chiaraluce isn't too worried about the volatility. He expects his 401(k) retirement account will even out by the time he needs to tap his savings in retirement.
"I'm sure my 401(k) has gone down," said Mr. Chiaraluce, who typically doesn't check his 401(k) balance except to review his quarterly statements.
He hopes the Fed will follow up on Friday's discount rate cut with more moves to encourage home buying.
"I think they need to drop the interest rates," he said, echoing what many on Wall Street are no doubt saying now that Fed stepped in Friday.
Larry Hilton, a 54-year-old Xerox Corp. technician from Reading, Mass., has been watching the market's ups and downs and thinking he should review his 401(k) to see whether his investment mix needs adjusting.
If he does make any investment changes, he likely would put more of his money in a low-risk investment like a money-market fund, he said.
"It's hard to know what the market's going to do next," Mr. Hilton said.