"After being down most of the day on earnings warnings in the tech sector and weak employment news, the President's call this afternoon for tax cuts to stimulate consumer and business spending prompted a strong recovery," says Stephen Carl, head of equity trading at the Williams Capital Group LP.
Stocks had tumbled to three-year lows after the assaults on the Pentagon and the World Trade Center as fears of recession and military response from the U.S. weighed on investors. But over the last two weeks the markets have erased most of those losses, with a hand from the Federal Reserve's ninth interest-rate cut this year and President Bush's proposal for a $75 billion economic stimulus package.
However, markets should remain volatile in coming weeks as investors will react to more dismal earnings outlooks from Corporate America. Continued uncertainty over what military actions will be taken in the Middle East as well as worries over the stumbling economy should continue to weigh heavy on the markets.
Late afternoon Friday, President Bush urged Congress to pass tax relief of at least $60 billion, which is the total amount expected for emergency spending in the wake of the September 11 attacks. Bush is asking Congress to accelerate marginal tax rate cuts, offer relief to moderate and low income workers, eliminate the alternative minimum tax for companies and allow firms to use enhanced expensing for capital expenditures.
The Labor Dept. reported that the unemployement rate held steady at 4.9%. But the jobless rate is expected to climb in future reports as the market begins to feel the impact from the terrorist attacks. Companies like airlines and hotels, which were immediately affected by the attacks, have announced tens of thousands of layoffs.
As the market turned higher Friday, Sun Microsystems Inc. (SUNW
), the computer server maker, led the way, gaining 6% after it said that it expects a worse-than-expected second-quarter operating loss.
Tech stocks came out with a pile of ugly earnings forecasts. Advanced Micro Devices Inc. (AMD
), the computer processor maker, said third-quarter dropped dramatically from the previous period. PC maker Gateway (GTW
) jumped in with its dismal outlook. It said it sees a third quarter loss even worse than the one Wall Street had expected.
On the heels of a solid performance from stocks earlier in the week, Goldman Sachs & Co.'s chief investment strategist Abby Joseph Cohen on Friday said she expected the Standard & Poor's 500 index to climb as much as 33% by the end of 2002 as the economy and corporate profits start to bounce back.
Stocks finished the week on a positive note. The Dow Jones industrial average added 58.8937 points, or 0.65%, to 9,119.77, rising 3.2% for the week. The Nasdaq Composite Index gained 7.99 points, or 0.50%, to 1,605.30, gaining 8.4% over the last week. The broader Standard & Poor's 500 Index was up 1.76 points, or 0.16%, to 1,071.38.
U.S. Treasuries ended a holiday-shortened session mixed after a session spent in mostly negative territory after news about the deteriorating job market. The unemployment rate held steady despite a drop of 199,000 in September in nonfarm payrolls. Hourly earnings rose 0.2%. Wage growth is a lagging indicator and is hardly the primary focus of the Fed, says Standard & Poor's economic research unit MMS.
But the persistent strength in wage growth provides an ongoing reminder that U.S. labor markets are still tight despite the likely surge in the unemployment rate over the coming four months to the 6% area from the current surprisingly-lean 4.9%, MMS says.
U.S. bond markets will be closed on for the Columbus Day holiday on Monday, Oct. 8.
European markets ended mixed. In London, the Financial Times-Stock Exchange 100 index finished slightly higher, up 19.80 points, or 0.39%, to 5,036.00, following the weak U.S. jobs report. But London investors were still encouraged by the Bank of England's rate cut to bolster economy. Germany's DAX Index finished off 60.44 points, or 1.33%, to 4,487.69, on the weak U.S. jobs report. In France, the CAC 40 finished down 31.04 points, or 0.74%, to 4,164.76.
In Asia, major indexes closed flat to lower. The Nikkei rose 0.39 of a point to 10,205.87 as technology stocks gathered momentum in the afternoon session, offsetting losses in bank shares. Meanwhile, Hong Kong's Hang Seng lost 9.01 points, or 0.09%, to 10,277.38.