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THE WEEK AHEAD

Wall Street looking for good news to sustain stocks' rise

March 23, 2009|Associated Press

Wall Street is in need of some positive reinforcement.

After the Dow Jones industrials just managed their first two-week stretch of gains in nearly a year, the question is whether investors will get the good news they need to keep buying.

The major indexes pulled back Thursday and Friday as investors collected profits from an advance that saw the Dow soar 14% over seven sessions. But some analysts aren't ready to call an end to the rally just yet.

"Any market that is going to sustain a rally on the way up is going to have pullbacks," said Jeffrey Frankel, president of Stuart Frankel & Co. "If everyone gets too happy too fast, that means we haven't seen the worst."

Analysts expect investors to focus this week on what the government says and does about the recession and the banking system.

"We need positive news to continue coming out of Washington," Frankel said.

The most critical news may well be the details of the government's plan to help relieve banks of an estimated $1 trillion of toxic mortgage-backed assets on their books.

Some of those details came out Sunday: A new government entity, the Public Investment Corp., will help buy those assets.

The plan is to seek private investors, including big hedge funds, to buy the assets, while the government will provide low-interest loans to finance the purchases and also share in the risk if the assets fall further in value.

The stock market plunged last month when Treasury Secretary Timothy F. Geithner announced the outline of the plan but few details.

But the tone of the market has improved somewhat since then.

Stocks soared last week after the Federal Reserve announced plans to pump more than $1 trillion into the financial system by buying Treasury bonds and mortgage-backed securities.

Doubt did creep back into the market, however; as the week wore on, many investors began to question whether the steps would be effective and whether they would ignite inflation.

For the week, the Dow rose 0.8%, its first back-to-back weekly increase since the period that ended May 2.

The Standard & Poor's 500 index rose 1.6%, its first two-week gain since December, and the Nasdaq added 1.8% for the week.

Financial stocks have largely driven the market these last few weeks, and that trend is expected to continue.

"If there's some more activity in the financials and you're not seeing a massive sell-off there, this [rally] could continue to pick up a little bit more steam," said Robert Pavlik, chief market strategist at Banyan Partners in New York.

Citigroup Inc.'s news that it operated at a profit the first two months of this year set off the rally that began two weeks ago.

Several other large banks have also said they are performing better than expected.

Still, many concerns about rising loan losses and dwindling capital levels remain, and they are likely to limit the gains for bank and insurance stocks.

But analysts say a little caution is good for the market.

"We have a better chance of the market having a real floor in it if this skepticism continues," Frankel said.

Analysts also have been encouraged by the market's orderliness, in which big gains have been followed by relatively slight declines.

"It's definitely healthy to have a pullback, the same way it was terribly unhealthy to go straight down," Frankel said. "We have to see a consolidation period without the sellers stepping in or people getting cold feet."

Outside financials, other industries to watch include energy, basic materials, technology and industrials -- all areas that are extremely sensitive to economic factors.

If those stocks continue to move higher, it would indicate the market is heading in the right direction, Pavlik said.

Investors will get a few readings on the housing market this week when the National Assn. of Realtors releases February existing-home sales figures today and the Commerce Department releases February new-home sales data Wednesday.

Investors want to see whether upbeat housing start figures that were released last week and that contributed to the rally were an isolated event or part of a healing trend in housing.

Also expected this week are reports on durable goods orders for February, as well as personal income and spending for the month.

On Thursday, the Labor Department will release its weekly jobless claims report, and the Commerce Department will issue its final fourth-quarter gross domestic product figure.

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(BEGIN TEXT OF INFOBOX)

At a glance

TODAY

National Assn. of Realtors releases existing-home sales for February.

Quarterly earnings reports are due from Tiffany and Walgreen.

TUESDAY

Senate Banking, Housing and Urban Affairs Committee hearing on bank supervision and regulation.

Treasury Secretary Timothy F. Geithner and Federal Reserve Chairman Ben S. Bernanke testify about American International Group at a House Financial Services Committee hearing.

Quarterly earnings report is due from Carnival.

WEDNESDAY

Commerce Department releases reports on new-home sales and durable goods for February.

Senate Energy and Natural Resources subcommittee hearing on energy market regulation.

House Financial Services Committee hearing on credit availability and lending standards.

Quarterly earnings report is due from SAIC.

THURSDAY

Labor Department releases weekly jobless benefit claims.

Commerce Department releases final fourth-quarter gross domestic product for 2008.

Freddie Mac releases weekly mortgage rates.

House Education and Labor Committee hearing on the economic and employment impact of the arts and music industry.

Geithner testifies before the House Financial Services Committee on financial regulatory reform.

House Science and Technology subcommittee hearing on aviation and the use of biofuels.

Quarterly earnings reports are due from Best Buy and ConAgra Foods.

FRIDAY

Commerce Department releases personal income and spending figures for February.

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Source: Associated Press

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