- The Washington Times - Tuesday, February 24, 2009

UPDATED:

Wall Street rallied Tuesday on a Federal Reserve prediction that the recession could end this year and reassurances that the government will not nationalize the banks, spurring financial stocks out of their weeks-long doldrums.

The markets recouped their losses of the previous trading session, with the benchmark Standard & Poor’s 500 index soaring 4 percent, the tech-laden Nasdaq right behind it and the Dow Jones Industrial Average spiking more than 3 percent.

At the close, the Dow leaped 236.16, or 3.32 percent, to 7,350.94. The Nasdaq streaked 54.11, or 3.90 percent, to 1,441.83. The S&P 500 jumped 29.81, or 4.01 percent, to 773.14.

The markets rallied after Fed Chairman Ben S. Bernanke told the Senate Banking Committee that he sees “a reasonable prospect” that the recession could end this year and a recovery begin in 2010 if financial stability can be restored by the Obama administration, Congress and his own organization.

Under questioning, he later reassured the financial sector that it “just isn’t necessary” for the federal government to nationalize any of the major banks, 19 of which will undergo a “stress test” beginning Wednesday.

Jittery investors had been antagonizing the markets for weeks on fears the government would take over one or more of the severely indebted banks, wiping out their holdings.

“People are so on edge that any opportunity gives people a reason to buy,” Matt McCall, the president of Penn Financial Group of Ridgewood, N.J. , told The Washington Times when asked about the market’s upsurge. “The comments out of Bernanke were not as negative” as some made previously.

Mr. McCall also said the markets moved into green territory because investors were looking for bargains following a 251-point drop in the Dow on Monday.

Wall Street ignored sagging earnings by major retailers and a report showing that consumer confidence has dropped to the lowest level since records started being kept in 1967; the markets know there is a severe recession.

The Conference Board, which monitors the nation’s leading economic indicators, said in a monthly report that the Consumer Confidence Index declined in February to a new all-time low of 25, down from 37.4 in January. The Present Situation index dropped to 21.2 from 29.7 last month.

“Looking ahead,” it said, “increasing concerns about business conditions, employment and earnings have further sapped confidence and driven expectations to their lowest level ever. In addition, inflation expectations, which had been easing over the past several months, have moderately picked up.”

The markets also shrugged off a report from Standard & Poor’s/Case-Shiller showing that the price of single-family homes plunged 18.5 percent in December from December 2007. Its composite index of 20 metro areas fell 2.5 percent in December from November compared with a 2.3 percent decline in the previous period.

Housing prices are one of the mainstays in the economy, and analysts have said repeatedly that both the housing market and the major banks must be stabilized before there can be an economic turnaround.

The upswing in the markets followed a sharp drop Tuesday in which both the Dow and S&P 500 fell to their lowest levels since the spring of 1997.

The Obama administration sought earlier Tuesday to calm Wall Street fears that it intends to nationalize some of the worst-off banks.

“I think there’s ambiguity in the word ‘nationalization,’” Sheila Bair, chairman of the Federal Deposit Insurance Corp., told CBS-TV’s “The Early Show.” “I think that is something that would be surprising.”

White House press secretary Robert Gibbs told ABC-TV’s “Good Morning America” on the same subject that the administration is “going to help banks get through this crisis, but nobody imagines nationalizing banks.”

In a glimmer of good news back home, the International Council of Shopping Centers and Goldman Sachs reported that retail-chain-store sales rose 0.6 percent for the week ended Saturday, even though sales compared with a year ago were down 0.8 percent.

It marked the fourth consecutive week of sales increases, a probable result of heavy discounting.

“Although retail-sector conditions continue to be weak, the message appears to be that consumer spending is just not as weak as in recent months,” said Michael P. Niemera, ICSC economist, in a report made available to The Washington Times.

He predicted that same-store sales for this month will be down 1 percent to 2 percent compared with February 2008.

But Macy’s Inc. reported nearly a 59 percent drop in earnings for the three months ended Jan. 31. It earned $310 million, or 73 cents a share, compared with $750 million, or $1.73 a share, a year earlier. Same-store sales in locations open at least a year fell 7 percent.

Home Depot Inc., the nation’s biggest home improvement retailer, reported that it lost $54 million, or 3 cents a share, during its fiscal fourth quarter, largely because of plans to close its four smaller brands. Last year, the retailer earned a profit of $671 million, or 40 cents a share.

If the charge against the closings and other items are excluded, Home Depot earned a profit of 19 cents a share.

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