Investors might be eagerly awaiting the effect Barack Obama’s inauguration will have on the economy and stock markets. The Federal Reserve last week said it’s been taking actions that will complement Obama’s fiscal policies.
In addition to reducing the federal funds rate, Fed Chairman Ben Bernanke said the Fed has sought to lend to financial institutions, provide liquidity to key credit markets and buy long-term securities.
The Dow Jones industrial average has lost more than 400 points in the first two full trading weeks of the year, but PNC chief investment strategist Bill Stone said Bernanke presented a “very logical plan for moving forward and continuing to heal the economy and the credit markets.”
“While the market is currently focused on the unknown depth and length of the current economic downturn, Bernanke’s plan gives us increasing confidence that the policymakers will be successful in averting the worst-case scenario,” Stone said. “We believe that, at some point, the values for risk assets should move higher in anticipation of the eventual recovery.”
Wall Street actually seesawed Friday, as the reality of rising losses at Citigroup and Bank of America Corp. was tempered by investors’ optimism about plans to improve the banks’ operations.
The companies’ fourth-quarter losses — Citi said it lost $8.29 billion, while Bank of America lost $2.39 billion — were sobering reminders that the sagging economy is aggravating the problems that began with the mortgage crisis in 2007.
But the market was heartened by the fact that Bank of America reached a deal late Thursday to receive an additional $20 billion in capital from the government.
The bank also will receive guarantees to cover up to $118 billion in losses on loans and securities backed by residential and commercial real estate as it incorporates recently acquired Merrill Lynch into its operations. Bank of America’s deal with the government is similar to one Citigroup reached with the government last fall.
John Merrill, chief investment officer of Tanglewood Wealth Management, said the change in direction Friday was not surprising.
“Every time the government does something, there is an initial and fleeting excitement [that] this will help,” Merrill said. “But [investors] look deeper and see, wow, this is a mess.”
The Associated Press contributed to this article.
