NEW YORK, Jan 3 – US stocks may have started the New Year with a bang but experts see major headwinds for the market as the new administration of Barack Obama moves rapidly to eject the economy from prolonged recession.
All three key stock indices shot up at least six percent in the week to Friday as investors banked on president-elect Obama, who takes over from George Bush on January 20, to push ahead with a mammoth plan to stimulate growth in the world\’s largest economy.
"Mr Obama\’s stimulus plan will be a major focal point for the market in January," said Patrick O\’Hare of Briefing.com.
"No one knows for certain right now what it will end up looking like, but one thing is certain at this point: it will be big in terms of its cost," he said.
Obama will meet lawmakers on Monday to finalise an infrastructure-based stimulus package that media reports say ranges from $850 billion to a trillion dollars in a bid to pump prime the economy reeling from its worst crisis since the Great Depression.
Nigel Gault, chief economist at IHS Global Insight, cautioned that any stimulus plan based on spending to boost infrastructure would take time to revitalise the economy.
"But how quickly can the funds actually be spent," he asked. "Infrastructure spending is a key part of the package, and it cannot be turned on and off like a faucet.
"We assume that the funds will take much longer than two years to spend out."
But Gault said that combined with the Federal Reserve\’s vigorous easing of interest rates, the stimulus package should help stabilize the economy in the second half of 2009 and promote some recovery during 2010.
The Dow Jones Industrial Average surged a hefty 6.09 percent for the holiday-shortened week to finish Friday at 9,034.69, its highest close since November 5.
The tech-studded Nasdaq leapt 6.66 percent to 1,632.21 and the broad-market Standard & Poor\’s 500 index advanced 6.75 percent to 931.80 for the week.
Experts cautioned that the advances of the key indices came amid very low trading volume as many investors were still on holiday.
Only twice in the past seven sessions has trading volume on the New York Stock Exchange exceeded one billion shares.
Trading in the week ahead could be dictated by a series of new economic data to be released, including December vehicle and retail sales figures and the widely watched employment report for the month, experts said.
Economists expect that the United States shed jobs for the 12th straight month in December while investors will closely watch to see if holiday retail sales were as poor as some retailers had suggested.
The number of companies to announce their quarterly earnings results will also start to pick up the coming week.
"Next week\’s indicators will constitute yet another stark reminder of how forces in the economy reached maximum negative amplitude at the end of 2008," analysts at Global Insight said in a report.
The bond market, which had greatly benefited from the financial and economic uncertainty, fell the past week.
The 10-year Treasury bond yield rose to 2.416 percent from 2.137 percent the previous week and that on the 30-year Treasury bond was up to 2.815 percent from 2.613 percent.
Bond yields and prices move in opposite directions.