Markets Rally Despite First Quarter Economic Data
Wednesday saw Wall Street rally as the Dow Jones industrial average rose 2.11 percent, or 168.78 to end the day at 8,185.73, while the Standard & Poor’s 500 increased 2.16 percent, or 18.48 points to 873.64, and the Nasdaq composite advanced 2.28 percent, or 38.13 points, to 1,711.94. The rally was quite unexpected when taking into account the dismal data revealing that the United States economy contracted in the first quarter of 2009 at an annualized rate of 6.1 percent. Nevertheless, investors were encouraged by higher consumer spending which they took to be an indicator that the recession may end soon. These hopes were boosted when, following a two day meeting of its policy making committee, the Federal Reserve noted that, although the U.S. economy is still contracting, there were signs that the pace of deterioration was slowing down.
It was further revealed that, due to increased consumer spending on big ticket items, business inventories had declined as companies made progress in clearing unsold goods and this, in turn, should result in boosting production in order to replenish their stock. Expectations that this is the beginning of a turnaround in the economy boosted markets. However, the likelihood of significant credit card losses has increased as more people lose their jobs and default on their payments, which could create stock market turmoil in days to come.
Meanwhile, in a news conference on Wednesday night marking his first 100 days in office, President Barack Obama reassured his fellow Americans that his administration is committed to rebuilding the U.S. economy, noting that his economic recovery plan had thus far either saved or created around 150,000 jobs. He defended the government’s intervention in the banking and auto industries, noting that assistance to these sectors was focusing on the long-term goal of getting them functioning profitably again, rather than short-term fixes. The federal budget outline proposes investing in worker training and education as well as the creation of renewable energy jobs. While acknowledging that his administration had a number of “big problems” to deal with, Obama expressed his confidence that his administration would be able to “move this economy from recession to recovery and ultimately to prosperity.”