NEW YORK, Feb 4 (AFP) - Just as things started looking bleak on Wall Street, Goldilocks came to the rescue.
The major stock indexes rose sharply over the past week as markets reacted to lackluster economic news by looking on the bright side.
The figures evoked the kind of scenario some describe as a "Goldilocks" economy that is neither too not, nor too cold.
The blue-chip Dow Jones Industrial Average rallied 2.8 percent in the week to Friday to finish at 10,716.13 while the broad-market Standard and Poor's 500 advanced 2.7 percent to 1,203.03.
The tech-heavy Nasdaq composite index climbed 2.5 percent for the week to 2,086.66.
After heavy losses in January, the major indexes has staged a strong recovery in early February, nearly erasing the losses for the year.
A weaker-than-expected report Friday showing the US economy generated 146,000 jobs in January suggested an economy that is growing only modestly.
That came on the heels of similar reports below most economists' forecasts on factory orders and labor productivity. Surveys on the factory and service sectors by the Institute of Supply Management were also weaker than expected, but that did not bother Wall Street.
"I think for equities at this stage of the cycle, we're kind of hoping for Goldilocks-type of economic data," said Bryan Piskorowski, market analyst at Wachovia Securities.
"Anything on the super strong side, I think, would create fears that the Fed will have an increased proclivity to tighten. At this point in time, to have job creation maybe at a slower than expected pace might be ultimately positive for equities."
Rod Smyth at Wachovia agreed that a slow-growth scenario may be positive for the market.
"For stocks, slower growth is a mixture of bad news (lower profits) and good news (low interest rates)," he said.
"Recent history suggests mid-cycle economic slowdowns have been favorable for stocks ... We do not expect either a big decline in long-term interest rates or a double-digit rise in stocks, but if slower economic growth causes the Fed to raise rates only 0.5 percentage points this year rather than the 1.25 percentage points expected by the market and economists, we think stocks will have another positive year."
Avery Shenfeld at CIBC World Markets says the kind of sluggish growth indicated by the employment report is "mixed news for equities, being negative for cyclicals, but supportive for interest-sensitive stocks."
Henry McVeigh at Morgan Stanley was less sanguine about the decelerating economy, and sees a difficult year for the stock market.
"Our bigger-picture conclusion is that 2005 will be the year that investors are again reminded that we are dealing with a post-bubble market," he said.
"We certainly do not believe that Armageddon is the next stop on this investment train, but we will probably spend some time in 2005 wondering where all the good times have gone."
Bonds rallied as the slow-growth scenario suggested less pressure on interest rates. The yield on the 10-year US Treasury bond fell to 4.073 percent from 4.138 percent a week earlier, and that on the 30-year bond eased to 4.478 percent from 4.610 percent. Bond yields and prices move in opposite directions.
02/04/2005 23:23 GMT - AFP