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NEW YORK: Battered US stocks enter the New Year next week on expectations of a gradual market recovery as president-elect Barack Obama moves to drag the world's biggest economy out of recession.
The US stock market has risen about 20 percent from its climactic lows reached on November 21 and "chances that we saw the bottom of the bear have increased because of the massive easing done by the Federal Reserve since then," said Alfred Goldman, chief market strategist at Wachovia Securities.
The Fed had vowed to do whatever it takes to help the economy and the credit markets, as it slashed interest rates to virtually zero two weeks ago to jump-start the economy from the worst slump since the Great Depression.
Goldman said stock valuation levels were "very attractive" and "the risk of a depression is extremely unlikely," forecasting the recession may end next summer.
"We do know that 2009 will bring a new slate of ideas from a very popular president-elect," he said ahead of Obama's inauguration on January 20 and the prospect of a massive stimulus package by his new administration.
Amid the current gloom of job and spending cuts as well as a credit squeeze, "the seeds are being sown for a modest recovery that we are forecasting to begin in mid-2009," said Stephen Auth of Federated Investors.
"The prospect for eventual better times has led us to raise slightly the risk profile of our model stock-bond portfolio to capitalise on opportunities that arise in the months after the economy bottoms," he said.
In the week to Friday, the Dow Jones Industrial Average, Wall Street's benchmark index, fell 0.74 percent to 8,515.55 following a 0.59 percent drop the previous week.
The tech-studded Nasdaq shed 2.17 percent to 1,530.24 while the broad-market Standard and Poor's 500 was down 1.69 percent to 872.80.
The stock decline stemmed from weak data on the ailing housing sector, and concerns over the fate of struggling automakers as well as plunging corporate earnings and retail sales as well as deteriorating US commercial property values.
"The underpinnings of the markets continue to improve, but it is still too early to say that the worst is finally over," said Paul Nolte, director of investments at Hinsdale Associates.
"Our best guess at this point is that we rally a bit early in the New Year as investors wish 2008 good riddance," he said.
However, he cautioned that once the likelihood of a still weak economy persisted into the second quarter, the market could visit old lows during the first half to eight months of the year.
"We are expecting that the second half of the year is not only good for the market ... and the economy should also begin to improve," he said.
The bond market, which had greatly benefited from the financial and economic uncertainty, fell the past week.
The 10-year Treasury bond yield rose to 2.137 percent from 2.131 percent the previous week and that on the 30-year Treasury bond was up to 2.613 percent from 2.562 percent.
Bond yields and prices move in opposite directions. - AFP/de
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