Economy displays weak link
Advertiser News Services
Investors shrugged off dire scenarios from yesterday's news showing a soaring jobless rate, noting that besides raising the likelihood of further Federal Reserve Board intervention, the evidence of an impending recession is decidedly mixed.
For instance, the government recently reported that the economy grew at a 2 percent annual rate in the first quarter of the year. That's decidedly weak, but it falls far short of the standard definition of a recession, which is two consecutive quarters of economic contraction.
Also, even at 4.5 percent jobless, the labor market has returned only to where it was in 1998. That was before the Internet boom drove unemployment down below 4 percent, a level that, in retrospect, may have been unrealistically low.
That prospect — that the economy has great underlying strength despite present problems — seemed to buoy investors.
The Dow Jones industrial average muscled ahead by 154.59 points, taking it to 10,951.24. The Dow now stands in positive territory for the year, although not by much — 1.5 percent.
The Nasdaq Composite Index also had a strong gain, climbing 45.33 points, or 2.1 percent, to end the session at 2,191.53. The Nasdaq still is well below water for the year, however, having lost 11 percent of its value.
"The message of the stock market is that investors have begun to look past the valley of the current economic slump and are now focusing on better times ahead," said Al Goldman, chief market strategist for the A.G. Edwards investment house in St. Louis.
The Federal Reserve already has cut borrowing costs for its member banks four times, lowering its so-called federal funds rate to 4.5 percent from 6.5 percent.
The prime rate, a benchmark against which numerous consumer and business loans are based, has declined proportionately, to 7.5 percent from 9.5 percent.
Most analysts are betting the Fed will drop the federal funds rate another half-percentage point when it meets May 15, to 4 percent. And further cuts are likely after that.
