Global equities staged an impressive turnaround last week as a new-found sense of optimism about the financial sector pervaded the market following encouraging comments from several US banks about trading.
The rise was most impressive in the US where investors have been searching for reasons to have a rebound/rally.
The weekend’s G-20 finance minister’s meeting didn’t produce any surprises and the differences between Europe and the US were papered over ahead of the full leaders meeting on April 2.
So the meeting can be considered a minor success, and one that market bulls will use to justify continuing the rebound.
For the week, the S&P 500 jumped 10.7%, the index’s third best week since World War II and the best week from November when investors last tried to engineer a rally.
The Dow jumped 9.01%, and Nasdaq added 10.6%.
The four up days in a row and some investors are wondering if it is the start of a major bear market rally, a fickle dead cat bounce, or something that will be later seen to have marked the bottom of the bear market.
Bear market rallies are often quick and violent, big surges, lots of momentum and then a crash as reality reasserts itself. And there’s plenty of reality about at the moment.
The S&P 500 index closed at its lowest level since September 1996 last Monday, as did the Dow. That was down nearly 60% from the index’s record high in October 2007.
The S&P has now risen nearly 11% from its low, trimming its loss for the year to around 16%.
The Dow is off around 18% for 2009 so far and Nasdaq is down about 9% as tech stocks seemingly ride out the 2009 slump better than the rest of the market.
The Dow added 54 points Friday, or 0.8%; the S&P 500 index added 6 points, or 0.8% while Nasdaq rose 5 points, or 0.4%.
Other markets showed similar patterns. London’s FTSE 100 index touched a six-year low this month, meaning the market was down nearly 50% from its June 2007 peak.
At the start of last week the FTSE Eurofirst 300 index closed at its lowest level since its creation in June 1997.
In Europe, the FTSE Eurofirst 300 rose 5.9%; in London the FTSE 100 climbed 6.3% over the week, ending four weeks of losses,
The MSCI ASIA Pacific Index rose 3.9%, also ending a four-week 14% drop.
The Nikkei 225 Average climbed 5.5% from a 26 year low in Tokyo and Hong Kong’s Hang Seng Index rose 5.1%.
Friday the Nikkei had its biggest daily gain in three months boosted by news from the US, where retail sales were better than expected and there were signs of hope in the financial sector.
Emerging markets also had good gains; with the benchmark MSCI EM index rising more than 8% over the week as investors rediscovered risky markets.
In Australia the market was up by around 6% in what was a solid week, capped by Friday’s 100 point gain.
So why the boom?
The flow of ‘good’ news outweighed the negative for the first time in weeks.
Commodities remained firm despite another week of poor news from China: copper and oil were solid.
But the weekend meeting of OPEC could hurt sentiment in oil and other markets. Grain prices fell because of the change of seasons in the US and projections of higher plantings of corn and wheat.
The best news of the week came from Citigroup, Bank of America and JPMorgan Chase which all said they were profitable in the first two months of the year, before taxes and asset valuations.
They could alter the figures, although past losses will mean a lot of protected earnings should appear on the bottom line.
Those banks report in about a month’s time and are likely to have a solid run up till then.
Thanks to the Federal Reserve’s zero interest rate policy and much higher yields for bonds and loans, banks are making good profits from their standard business of borrowing at low rates and lending for longer periods of time: that’s something they all forgot in the mad, bad days of cheap and easy credit.
This week, the S&P financials index has surged 34%, cutting its loss for the year to 35%.
The biggest worry was the move by the Swiss National Bank which intervened in the currency markets to stop the rise in the value of the Swiss franc by selling it against the euro and US dollar.
The franc fell 4.7% against the euro and 2.5% against the dollar.
The rebound in markets and more certain sentiment saw the US currency sold down generally: it lost 2% against the euro and was weaker against the yen which had weakened the week before.
The Australian dollar closed to end over 65 USc on Saturday morning, for a gain of almost two US cents from Monday.
