Markets up, Dow above 9,000

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By Richard C. Gross, THE WASHINGTON TIMES

UPDATED:

Wall Street moved higher Tuesday amid mixed reports about the economy and a warning from the Federal Reserve that the recession likely will get worse this year before a turnaround begins and that the number of unemployed will rise into 2010.

The markets retreated from their highs of the day after seesawing in positive territory since the open, with high-tech stocks and some financials pushing up the indexes. The Standard & Poors 500 closed at its highest level since Nov. 5.

The negative reports included a record fourth consecutive month of a drop in factory orders and an increase in the number of holds put on the purchase of existing homes.

At the close, the Dow Jones Industrial Average rose 62.21, or 0.69 percent, to 9015.10. The tech-heavy Nasdaq climbed 24.35, or 1.50 percent, to 1652.38, a two-month high. The broader S & P increased 7.23, or 0.78 percent, to 934.68.

Minutes from a meeting of Fed policymakers last month, when a key interest rate was lowered virtually to zero, said most of them predicted a slow recovery from the recession during the second half of this year but that unemployment would rise significantly into next year.

About 1.9 million people lost their jobs during the first 11 months of 2008, pushing the unemployment rate to 6.7 percent. Some economists have predicted it will rise to 8 percent.

Tight credit, low consumer confidence, stock market declines and weakened household finances were among the reasons cited by the Fed for the poor state of the economy. Further, it said, weak retail sales and the inability to get credit are likely reasons for falling business spending.

The stock market knows there is a recession and seems to have digested much of the bad economic news that have been reported recently by various government agencies and private organizations. It appears to be looking ahead, including toward President-elect Barack Obamas multibillion-dollar economic stimulus plan.

Treasury yields got to their lowest level last year and stock prices did as well, and the markets are reassessing the price of risk, Brian Fabbri, the chief economist at the New York branch of BNP Paribas, one of Europes major banks, told The Washington Times.

The markets are starting to look for things that are supposed to provide stimulus for consumer spending three to six months from now, he said.

Factory orders dropped in November for the fourth successive month, a record that reflected the worsening recession and showed weakness in commercial aircraft, autos, primary metals that included steel and defense communications equipment, the Commerce Department said.

Orders fell by 4.6 percent, nearly double the 2.5 percent that had been expected by economists.

The National Association of Realtors said the seasonally adjusted index of pending sales of existing homes fell 4 percent to 82.3 from a downwardly revised reading in October of 85.7 because potential buyers put their purchases on hold, a result of the stock market crash and the worsening recession.

The reading was down 5.3 percent from November 2007 and beat the previous low of 83 set in March.

In a bright spot, new orders and employment improved in December in the services sector, which include retail, hotels and health care, the Institute for Supply Management reported.

The trade group of purchasing executives said its services sector index increased to 40.6 from 37.3 in November. Economists had expected the index to drop to 37, according to Thomson Reuters.

But the index shows that the services sector still is contracting because any reading below 50 indicates shrinkage. A reading over 50 signals growth.

On the weakening job front, the health benefits company Cigna announced that it was cutting 1,100 jobs, or 4 percent of its workforce, in response to the economic downturn and a bid to save up to $40 million. The company is based in Philadelphia.