Financial Sector Drives U.S. Market As Investors Await Details of Toxic Mortgage Buy-Up Plan
Wall Street pulled back on Thursday and Friday of last week after enjoying a seven-day market rally which resulted in the Dow gaining 14 percent. Stocks jumped on Wednesday spurred on by the Federal Reserve’s latest credit crisis plan, but fell again Thursday and Friday as concerns set in that the Fed’s plan to inject a significant amount of money into the economy could fuel inflation. Optimists are quick to point out that any market rally is subject to pullbacks and anticipate that positive steps from the Obama-administration in dealing with righting the wrongs in the financial sector will reflect well on markets.
Financial stocks have overshadowed other stock market sectors in the past few weeks, and it is anticipated that this trend will continue heading into the end of the first quarter of 2009. The most critical news is likely to be the unveiling on Monday of further details regarding the Fed’s plan to relieve banks of up to $1 trillion in troubled mortgage assets currently lying on their books. Some details released on Sunday include the fact that a new government entity is to be established under the name of the Public Investment Corp. This entity will assist private investors, such as hedge funds, in buying the toxic mortgage assets by providing low-interest loans for the purchases, as well as sharing in the risk associated with a possible further drop in asset value.
Existing home sales figures for the month of February will be released by the National Association of Realtors on Monday, with the Commerce Department releasing new home sales figures on Wednesday. Following last week’s encouraging housing start figures, investors will be keen to see if February’s figures indicate a trend toward recovery in the housing market.
On Tuesday the House Financial Services Committee is scheduled to hold a hearing on the controversies raging around AIG. Both Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner will attend the hearing. Also on Tuesday, the Senate Banking Committee will be discussing modernization of bank regulations with Federal Deposit Insurance Corp Chairman Sheila Blair being one of the speakers.
Thursday sees the release of the Labor Department’s weekly jobless claims report, which is expected to have risen from 646,000 to 650,000. Last week’s report revealed that continuing claims, being claims from people who have been receiving unemployment benefits for more than a week, rose to a new level of $5,473,000. The University of Michigan is due to release its revised reading on consumer sentiment on Friday, and with the economy largely being driven by consumer spending, this will no doubt be of great interest to stock market investors.