Stock rally signals relief, hope
Citigroup's billions in losses could have been worse, so the Dow surges. But with recession likely, some investors question the market's resilience.
NEW YORK — Stocks powered ahead Friday, lifting the Dow index to a three-month high on growing optimism that the worst of the credit crisis is past.
A $5.1-billion quarterly loss by Citigroup Inc. provided the unusual spark for a "relief" rally -- relief that the news from the world's biggest bank wasn't even worse and that it appeared to be addressing its problems aggressively.
Citigroup said it had written down $12 billion of bad investments, half of it mortgage-related, and would cut 9,000 more jobs.
"This is what investors want to hear," Jefferies & Co. strategist Art Hogan said, referring to the write-downs. "We're getting the sense that a lot of the worst case has been priced in," or taken into account.
The Dow Jones industrial average gained 228.87 points, or 1.8%, to 12,849.36. It was the index's fourth straight winning day and brought it to a three-month high. The Dow has risen 9% since March 10, although it remains down 9% from the record high it hit Oct. 9.
Hogan also credited recent actions by the Federal Reserve with easing a freeze-up in the credit markets. But he and other experts said it was too early to tell whether the central bank's interest rate cuts and other efforts to pump money into the financial system would spur high inflation months from now.
"This is a nice day in the market, but I personally think it's too early to call it a big turning point for the financials," said Michael O'Rourke, strategist at BTIG in New York.
As often happens on Wall Street, Friday's rally defied somber economic news. In California, for example, the unemployment rate for March shot up half a percentage point to 6.2%.
There is a consensus among economists that if the country is not currently in recession, it is close to it. Consumer spending -- the economy's main driver -- is under pressure from high gasoline prices, falling home values and worries about jobs.
The economic malaise, among other things, caused some experts to doubt that the turnaround for stocks would have staying power.
"Maybe the big hit from sub-prime is behind us, but if we're in the early part of a recession, things will get a lot worse," said Robert Brusca, chief economist at Fact and Opinion Economics in New York. "I think it's better to be skeptical about this rally than embrace it."
A big factor in the rush back into stocks in recent weeks has simply been relief that the financial system didn't implode under the weight of the mortgage debacle, analysts say.
