Dow Up 497.48 Points. But Will the Rally Last?
Today’s big financial market news is that the Dow ended up nearly 500 points today. In a tremendous show of confidence for the latest plan from Timothy Geithner, investors rallied, sending the Dow within striking points of 8,000.
Much of the enthusiasm for the stock market is coming from the unveiling earlier today of a plan to buy more troubled bank assets. The plan is receiving a confident round of applause as the Treasury department makes it clear that it is ready to help banks clear out their balance sheets. The move is supposed to get banks lending again, thereby greasing the wheels of the economy.
It’s a nice stock market rally, but will it last?
Of course the main question on everyone’s mind is whether this stock market rally will last. Everyone wants to know if it is sustainable. The Financial Times offers this analysis of the possible pitfalls that could face this latest plan as investors, bankers and politicians start to mull things over:
But will this plan work any better than its predecessors? Like the original troubled asset relief programme, which set off a big rally in September, it assumes that the problem is one of liquidity. It aims to put a price on securities that are not trading. But, if the problem is really one of solvency – that current prices for these assets are accurate – the gains may not be durable.
Further, there is mistrust of politicians. A sell-off at the end of last week eradicated all the gains made by the financials on the dramatic news that the Federal Reserve would buy $300bn in Treasury bonds.
Instead, investors reacted to the vote by the House of Representatives to tax bonuses for employees of banks in receipt of Tarp funds. This led to dire forecasts that it could hobble future rescue attempts. …
There is emotion on all sides. Wall Street is raging against the dying of the light, and Congress is responding to populist rage.
At any rate, it is clear that this is some of the first good news since the weekend, and it could start the week out right for the stock market. As long as Wall Street believes that, ultimately, the government is on its side and ready to do anything to keep the system afloat, it is likely to respond with gains.
March 24th, 2009 at 12:59 pm
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