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Zig-zagging market closes up again
Dow finishes with gain of 423 points
Question of the Day
A ray of hope for the economy emerged Thursday and helped to snap the stock market out of its deep morass, spawning a 423-point rally in the Dow Jones Industrial Average.
The market’s zig-zagging in recent days, with ups and downs of 400 points or more on the Dow every day this week, is unprecedented and reflected the tug of war between bears bracing for a double-dip recession and bulls hoping for better days.
News from the Labor Department on Thursday morning that jobless claims fell to a four-month low last week bolstered the view of the bulls and encouraged buyers to come back into a downtrodden market where major indexes had lost 20 percent of their value and many stocks had fallen to bargain prices.
Also helping the market was a vote of confidence from legendary investor Warren Buffett, who told Fortune magazine that he has been snapping up low-priced stocks all week.
“The lower things go, the more I buy,” he said. “We are in the business of buying” and conditions have “never been better.”
Mr. Buffett says he doesn’t expect a fallback into recession in the United States, though that could change if the markets don’t regain their composure. He also took issue with Standard & Poor’s decision to cut the U.S. credit rating from AAA, saying the country is so creditworthy it would deserve a “AAAA” rating if there was such a thing.
The market also got a boost from Cisco, the computer networking giant, which said its revenues are growing more quickly than expected and produced better than expected profits this quarter.
Cisco shares jumped 16 percent, helping to push tech stocks up by 3.6 percent. Financial stocks also rebounded by 4.1 percent after a steep drop of 7.1 percent on Wednesday.
The Dow ended up 4 percent at 11,143. The blue-chip Standard & Poor’s 500 index surged 4.6 percent to 1,173, while the Nasdaq Composite Index jumped 4.7 percent to 2,493.
The Dow surged as much as 600 points during another day of heavy trading after the Labor report showed a drop in state unemployment claims to less than 400,000 last week - breaching a critical threshold that suggests the economy is picking up speed. That helped to dispel fears of a double-dip recession.
“We believe the risk of a recession in the near term is quite small,” said Barry Knapp, analyst at Barclays Capital.
The economy is doing better than many people think, he said, because much of the downward revision in economic growth to an annual rate of less than 2 percent in the first half of the year that frightened the markets two weeks ago was the result of higher inflation rather than lower output.
“This is important” because the growth in economic output before adjusting for inflation “correlates reasonably well with corporate profits and revenues,” he said, He added that “a little bit of extra inflation is a good thing for corporate profits.”
Jerry Jasinowski, former president of the National Association of Manufacturers, said global stock and commodity markets had raced ahead of economic growth earlier this year, partly because of the ample and cheap money loans provided by the Federal Reserve. Now, stock prices are correcting to reflect the reality of slower economic growth, he said.
“We were having a mini bubble in stock and commodity prices,” he said. But uncertainty about the outlook may continue to plague the market.
© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.
About the Author
- Unemployment rose to 6.2 percent in July; 209K jobs added
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