For the second time in a month, the Dow Jones Industrial Average (an unmanaged index of 30 widely held stocks) gained over 400 points, more than making up recent losing streaks as the volatile market index gyrated above and below the 12000-point mark. The gain of 420.41 put the close at 12392.66, the Dow’s best finish in March. A week prior it had spiked 416.66 points, but some of that gain was lost in the meantime. Recently, observers credited the Federal Open Market Committee (FOMC) decision to cut the fed funds rate by 75 basis points (bps).
The Fed action came on the heels of its recent cut of 25 bps and its bold move to become involved in the transaction in which JP Morgan Chase announced a buyout of struggling investment banker Bear Stearns. All the moves together seemed to be a signal that the Fed will not stand by during an economic shipwreck.
The market was buoyant all day, cheered initially by positive first-quarter profits reports from Lehman Brothers Holdings, Inc. and Goldman Sachs Group Inc. that sharply exceeded average analyst estimates. Their reports eased fears that the subprime debacle that helped bring down Bear Stearns might have severely injured these securities firms, as well.
The FOMC, in a recent statement, was careful to note weakened economic activity, slowing consumer spending growth and troubling labor markets. “Financial markets remain under considerable stress,” it said, acknowledging the tightened credit conditions and a deepened housing market contraction, factors it expects to weigh down economic growth “for the next few quarters.” A February drop in housing starts underscored the difficulty the Fed has in trying to revive consumer confidence.
It may take more than this Fed action and market euphoria to relieve the constant volatility – and many are adopting a wait-and-see attitude before trying to draw any conclusions. Even in its current state, however, this market may offer opportunities of interest to conservative investors with a long-term viewpoint. If the possibilities interest you, or you’d like to review your portfolio with an eye on current conditions, please contact a Raymond James Financial Advisor at UNFCU. We’re always happy to hear from you.
