Wall Street rally gets second wind

NEW YORK (AFP) – Wall Street's gravity-defying rally found new life over the past week, providing optimism for investors heading into what has historically been one of the best periods of the year.

The markets were able to shake off a disappointing report on the US labor market that sparked renewed doubts about the economic recovery.

Some analysts say the market is gaining confidence slowly that an economic recovery will take root soon. Others say the rally, like the recovery, remains fragile.

Over the past week the Dow Jones Industrial Average vaulted 3.2 percent to end Friday at 10,023.42, as the market rebounded from two weekly losses.

The tech-heavy Nasdaq composite advanced 3.29 percent to 2,112.44 and the broad-market Standard & Poor's 500 index rallied 3.2 percent to 1,069.30.

The market rallied for most of the week in anticipation of Friday's labor market report, which turned out to be a disappointment. It showed US unemployment jumped to double digits in October for the first time since 1983, reaching 10.2 percent despite narrowing job losses.

Analysts said the report highlighted slow progress in bringing down unemployment as the economy emerges from recession.

Cary Leahey, senior economist at Decision Economics, said that the stock market has been able to rally on signs of stronger corporate profits, as companies shed workers to boost their bottom line.

"You have a V-shaped recovery in earnings but the V has stalled in employment," he said. "That's why the stock market can rise even when the situation for many Americans is so bad."

Linda Duessel at Federated Investors said, meanwhile, she expects "upside surprises that are not yet priced into stocks."

She said consumer spending is recovering, and this is seen in sales of retail goods as well as automobiles, which have topped most forecasts.

"The jobs picture isn't as clear, but today's October report sported a big jump in temporary hiring, which is a key component of the monthly jobs report that we have been focusing on, as it is a reliable indicator that tends to lead changes in payrolls by 4-1/2 months on average," she said.

Duessel said manufacturing, real estate and credit are all showing positive signs as well.

David Rosenberg, chief economist at Gluskin Sheff & Associates, said the stunning market rally of some 60 percent since March has been fueled by speculative cash and a recovery supported by extraordinary government stimulus.

"If the overwhelming consensus is correct that the recession is behind us, then what we have on our hands is the mother of all jobless recoveries," Rosenberg said.

"The stock market has had a history this year of shrugging off weak employment report after weak employment report because the expectation is that we will see further rounds of fiscal stimulus, so it's hard to say what equity investors will do with this latest piece of data."

US Global Investors chief executive Frank Holmes said the market has pulled through what is historically the most difficult period of the year and now faces a generally upbeat season.

"November and December are two of the best months over the past 50 years," he said.

"There are, of course, no assurances, that this year will follow the strong November-December historical trend. In 2007, for instance, the Dow dropped nearly five percent in the last two months of the year as the US and other countries slipped into recession."

Sam Stovall, equity analyst at Standard and Poor's, said the past week "was a good example of how determined both the bulls and the bears are on their near-term positions."

"The market may move to a period of digestion and need a new catalyst, whether it's guidance from companies, news from economic data or any kind of developments in (merger) activity," he said.

Bonds fell on the week. The yield on the 10-year Treasury bond increased to 3.503 percent from 3.392 percent a week earlier and that on the 30-year bond rose to 4.394 percent against 4.236 percent. Bond yields and prices move in opposite directions.

The coming week has a light menu of economic news, including data on the US trade balance. Results are due from retail giant Wal-Mart and the Walt Disney Co.