Wall St’s rally may continue with stimulus

WITH signs of a slower economy mounting, the near-term outlook for US stocks isn’t rosy, but investors may find comfort this week from the world’s major central banks.

The Federal Reserve will meet tomorrow and on Wednesday, and the report of weaker-than-expected, first-quarter growth could reinforce expectations the Fed will keep purchasing bonds at a pace of $85bn a month.

Low interest rates and ample liquidity provided by the Fed and other central banks have buoyed global equity markets because low borrowing costs for businesses and consumers lead to richer corporate profits. Major US stock indexes hit record highs earlier this month.

A strong commitment from the Fed to continue its stimulative policy, coupled with corporate earnings that have mostly exceeded lowered forecasts, could help Wall Street extend a rally despite signs that the US economic recovery is losing momentum.

Even though the market ended flat on Friday, its performance last week was positive. The Standard & Poor’s 500 rose 1.7 per cent, the Dow Jones Industrial Average was up 1.1 per cent and Nasdaq Composite Index gained 2.3 per cent. The economy expanded at a 2.5 percent annual rate in the first quarter, the Commerce Department said on Friday, short of expectations of 3 per cent.

A full slate of key economic indicators will be released this week, including personal income and spending, the Institute for Supply Management’s manufacturing and services activity indexes, pending home sales, the Chicago purchasing managers’ index and consumer confidence from the Conference Board.

On Friday the Labor Department is due to release its employment report for April.