Marc Pado Comments: Dow Roars Back Above 10,000
July 7, 2010, Chicago Tribune
Finally, relief.
The Dow Jones industrial average climbed 274 points, to 10,018, Wednesday, for its first close above that benchmark since June 28. It also was the biggest one-day gain in some six weeks, thanks to investors encouraged by retail sales in the U.S. and stress tests planned for European banks.
Similar tests done on U.S. banks in the market's gloom in early 2009, suggested that the financial system would survive and lifted a tumbling stock market. So analysts have been saying the last couple of weeks that if Europe ran "credible" stress tests, that would provide the same assurances to investors buzzing about the risks to the European financial system.
Details released Wednesday included the economic scenarios the stress tests would cover. Based on that, analysts speculated losses would not be as extreme as guessed.
And retail sales provide some evidence that American consumers are willing to shop despite an entrenched unemployment rate and an unwillingness to buy homes since the $8,000 tax credit expired. The International Council of Shopping Centers said sales have been growing about 4 percent a month, the strongest since 2006.
That ran counter to expectations based on a large downturn in consumer confidence and home purchases as well as the 9.5 percent unemployment rate. Though encouraging, the good retail news is not a turning point for a broad range of American consumers.
Howard Levine, chief executive of Family Dollar Stores, whose shares bucked the retail trend to fall 8 percent Wednesday, said "the environment remains challenging for consumers, and customers continue to buy close to need."
Still, "there is some confidence now that there will be more positive surprises than negative during the earnings season," Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co., told Reuters.
Tom Schrader, managing director at Stifel Nicolaus Capital Markets , is not ready to declare this a market turning point.
"We may see riskier behavior heading into the next couple of days. It's not uncommon to see a short-term technical rally," Schrader told Reuters. "(But) I don't think it's sustainable beyond about a week. The overall economic situation is not conducive to equities."
Other factors Wednesday indicated a slowly stabilizing housing market despite stagnant sales: The delinquency rate on home-equity loans fell for the first time in two years, the American Bankers Association said.
The percentage of home-equity loans on which consumers were at least one payment late declined to 4.12 percent in the first quarter from 4.32 percent in the fourth quarter of 2009. It was the first decline since the first quarter of 2008, when the rate fell to 2.34 percent from 2.39 percent.
Home-equity loans, or second mortgages, differ from home-equity lines of credit because borrowers can't withdraw more money once the loan has been made.
Delinquencies on home-equity-linked credit lines peaked at 2.12 percent in the third quarter last year, fell to 2.04 percent in the fourth quarter and dropped again in the latest survey to 1.81 percent.
"The pace, though, of the housing recovery is still going to be very long and drawn out," said James Chessen, chief economist for the bankers group.
The latest data from the Bureau of Labor Statistics showed that U.S. average weekly wages rose 2.5 percent in the fourth quarter of 2009 from a year earlier. However, the trend from 2000 to 2009 had inflation-adjusted wages falling slightly.
But the recent recession isn't to blame for the "prolonged period of wage stagnation," according to the Economic Policy Institute.
"Between 2002 and December of 2007, the country was in a period of economic expansion, and for most of that time, from 2003 through 2007, wages fell," according to a Dow Jones Newswires story citing the Washington think tank's study.
"Wages had improved in the early part of the decade on the momentum of the rapid wage growth of the 1990s, but that progress was halted by the spike in unemployment during the 2001 recession and never re-established itself."
