The Stock Market

Wall St. rallies late as data offsets bond sale gloom by Edward Krudy (Reuters)
http://www.todaysfinancialnews.com/us-stocks-and-markets/panicked-short-selling-causes-financials-rally-3531.html

According to Krudy's article, the present Wall Street rally stems from the recent reports in the "housing and durable goods" markets. Most notably, the February housing report boosted consumer confidence with statistics that indicated a rapid increase in new home sales within a ten month period. Consequnelty, homebuilder shares have been steadily rising. Krudy offers the share DJUSHB as an example, which has went up by 2.2 percent since the report's release. Another factor contributing to the rally is the advance of large manufacturers, including Boeing, as the nation's "orders for long-lasting manufactured goods unexpectedly rebounded." The third, and most critical, aspect leading to the rally was the belief that (save for Citigroup) the U.S. banking system was "stabilizing," confirmed for most people by a recent LA Times interview with the Chief Executive Kenneth Lewis of Bank of America Corp., who, says Krudy, stated that his company would "start repaying $45 billion of federal bailout money" beginning in April.

However, this late progress strikes me as rather artificial. While the strength of the stock market relies on these bursts of consumer confidence, the premise of the current rally appears considerably fragile. For one thing, the rise in home sales comes in light of plunging housing prices, a trend that still persists, and while it is commendable that many large manufacturers have experienced a surge, the more crtical automobile manufacturers, companies like General Motors, still suffer and demonstrate little hope of feasible recovery. This hinders the supposed "stabilization" of the banking system in light of the struggles of Citigroup, and even companies like Chase that have shown some upward progress. Underlying this is that a facade of consumer confidence will not be sufficient to boost the economy, given that the more significant issues of the housing crisis, the auto industry, the banking system, and the unemployment, retirement savings losses, and other financial and social consequences that this financial crisis has created, will take years, perhaps even two presidential terms, to begin feeling lasting economic progress.