Sour Economic News Puts Wall Street Rally on Ropes

By Currier, Chet | THE JOURNAL RECORD, February 8, 1992 | Go to article overview

Sour Economic News Puts Wall Street Rally on Ropes


Currier, Chet, THE JOURNAL RECORD


For anyone on Wall Street who hoped the economy would accelerate as 1992 began, recent days have brought a steady stream of disappointments.

The government's first report of the new year on the job market, issued on Friday, showed no appreciable stirrings of life.

Furthermore, the Federal Reserve Board signaled that it wasn't in a rush to provide fresh stimulus in the form of new moves to ease credit conditions.

And the yearend rallies that erupted in both the stock and bond markets have lately lost a lot of their zip.

"The stock market began 1992 in a strong uptrend, but that rally shows signs of faltering," said analysts at Wright Investors' Service, a Bridgeport, Conn., investment management firm.

"Fiscal and monetary policy uncertainties cloud the economic horizon, and weakness in the bond market has begun to spill over into equities."

So far the pace of economic activity hasn't responded much even to the shock treatment the Fed administered on Dec. 20, when it cut its discount rate by a full percentage point to 3.5 percent.

Consumers have remained extremely wary, apparently shunning debt and saving as much as possible out of concern over the employment situation.

"A profound loss of confidence remains the critical impediment to a turnaround in consumption," said Stephen Roach, economist at Morgan Stanley & Co.

Yet at the same time, bond prices have dropped and long-term interest rates have turned upward of late, apparently bracing for a pickup in business activity even before it shows itself.

As many observers see it, that bond market weakness has been a deterrent to any further credit-easing moves by the Fed.

If bond traders perceive the Fed's policy as inflationary, the central bank evidently fears, they will thwart any stimulative intentions by pushing interest rates higher. …

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