Growing Confidence in U.S. Financial Sector Boosts Stocks

Staging a late in the day rally, the Dow Jones Industrial Average ended Wednesday with a 1.4 percent gain, while the Standard & Poor’s 500 rose 1.3 percent and the Nasdaq Composite Index gained 0.1 percent. Technology stocks, which had drawn buyers during the month, were dealt a blow by Intel Corp’s reticent forecast. However, investors looking for stocks that are likely to experience a rebound, were encouraged by the Federal Reserve report on the economy, which prompted stock market traders to buy up financial sector and consumer product stocks.

The “Beige Book”, a reading on the economy published by the Federal Reserve, indicated that although overall activity remained weak or even got worse, five of the twelve districts analyzed by the Fed showed that the pace of decline had slowed down, while additional districts showed that certain sectors of the economy appear to be stabilizing. There is a growing optimism that the financial sector is bottoming out, an optimism which was strengthened by the Goldman Sachs report of a $1.81 billion profit for the first quarter of 2009.

Following the much-publicized G-20 summit that took place in London earlier this month, U.S. Treasury Secretary Tim Geithner is set to host a meeting in Washington, D.C., of finance ministers of the G-7 countries, which are the United States, United Kingdom, Canada, France, Italy, Germany and Japan. At the G-20 summit, member nations pledged over $1 trillion to the International Monetary Fund (IMF) to assist economies in need, however, due primarily to time constraints, details of the plan need to be clarified and analysts believe that this will be on the agenda for next week’s meeting.

Investor confidence in the ability of the economy to recover was further boosted by U.S. President Barack Obama in a speech delivered at Georgetown University in Washington earlier this week during which he noted that recent economic stimulus measures are beginning to show signs of economic progress, but cautioned that 2009 will “continue to be a difficult year for America’s economy”. Federal Reserve Chairman Ben Bernanke has been quoted as saying that he is “fundamentally optimistic” about the U.S. economy as it is built on strong foundations. He further noted that current economic problems can be overcome with “insight, patience and persistence.” Stock market traders will no doubt agree that these are necessary qualities for anyone investing in stocks during these tumultuous economic times.