Wall Street rally defies odds, economic indicators
By Kevin G. Hall | McClatchy Newspapers
WASHINGTON — For every argument that financial Armageddon is upon us, there's a day like Thursday that brings unexpected, welcome and steep gains on the stock market and a glimmer of hope for consumer confidence, even as economic indicators show a quickly worsening economy.
In what no longer seems unusual, the Dow Jones Industrial Average on Thursday swung almost 900 points from its low point to a high at closing. Blue chips finished the day up 552.59 points, or 6.6 percent, to 8835.25, the third-largest daily gain on record.
That wouldn't be so surprising if the Dow hadn't been down in the morning by more than 300 points, following a close Wednesday that was off more than 411 points.
All the more remarkable, Thursday's big gains came as jobless claims leapt to a seasonally adjusted 516,000 — the highest one-week number in seven years — and a day after Treasury Secretary Henry Paulson tore up his playbook for the Wall Street rescue plan.
An up day on Wall Street isn't by itself proof that the worst is over, but Thursday did reflect a test of last month's lows as early trading sent the Dow below the psychological barrier of 8,000. Traders responded by sending the Dow and other indices bouncing back sharply. The S&P 500 finished up 6.9 percent and the Nasdaq closed up 6.5 percent.
A new survey on consumer attitudes and spending, called the RBC Cash Index, released Thursday, found consumer sentiment holding steady.
The survey, conducted by Ipsos Public Affairs, found that while low, consumer sentiment isn't eroding much more. Consumer confidence, as measured by the index, fell 2.3 points from the October survey, which had posted the largest single-month decline since the measure's inception in 2002.
Ipsos said the slight drop indicated "some degree of stability in consumer evaluations of economic conditions."
The polling firm isn't expecting consumers to resume spending or to begin feeling much better about the economy, however.
"While the continuing decline in fuel prices has generated some positive movement regarding future expectations, the ongoing trouble in the stock market and rising unemployment has soured consumers' attitudes regarding jobs and investments," the Ipsos/Royal Bank of Canada survey said.
On Capitol Hill, however, five of the nation's richest managers of hedge funds, investment pools for the ultra wealthy, painted a grimmer picture of the economy.
Kenneth Griffin, the chief executive officer of the Citadel Investment Group, a major investment fund, testified Thursday that financial markets had never seen what's transpired over the past eight weeks.
"We had a panic in the money market system, we had a panic in the banking system" that threatened the entire Western world's financial systems, he testified.
Billionaire investor George Soros was even glummer.
"A deep recession is now inevitable, and the possibility of a depression cannot be ruled out," Soros said in prepared remarks.
Consumers account for almost two-thirds of U.S. economic activity, so their return to spending is vital to getting the nation's finances back on track. The Bush administration's $700 billion Wall Street rescue plan, which passed Oct. 3, was designed to shore up banks and thus spark new lending.
More than a month later, however, that plan has morphed into government injections of cash into banks. Angry senators on Thursday summoned top banking executives to Capitol Hill and demanded that they now step up lending to consumers.
"Let me say as clearly as I can: Hoarding capital and acquiring healthy banks are not — I repeat, are not — reasons why Congress authorized $700 billion in emergency funding," said Sen. Christopher Dodd, D-Conn., the chairman of the Banking Committee.
As top executives from JP Morgan Chase, Wells Fargo & Co., Bank of America and Goldman Sachs listened, others lawmakers joined the chorus.
"If taxpayers' funds are not going to be used for lending, then we need to give serious thought to whether this effort still makes sense," said Sen. Sherrod Brown, D-Ohio.
Republicans such as Florida Sen. Mel Martinez said a bolder approach was needed.
"I think we need to get aggressive and get ahead of the problem once and for all," he said.
Appearing on the "NewsHour" public television show Thursday night, Treasury Secretary Henry Paulson said the emergency plan was intended to restore financial stability and that banks were right to be cautious about new lending.
"The banks just got these funds and, even if this is working better than expected, you're still going to see lending restricted more than we would like given the severity of what's going on in the economy," he cautioned.
In a speech Thursday in New York to the Manhattan Institute, President George W. Bush suggested that financial markets are returning to stability.
"Credit markets are beginning to thaw. Businesses are gaining access to essential short-term financing. A measure of stability is returning to financial systems here at home and around the world," Bush said. "It's going to require more time for these improvements to fully take hold, and there's going to be difficult days ahead. But the United States and our partners are taking the right steps to get through this crisis."
(David Lightman contributed to this article.)
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