Wall Street Regroups After Wild Week

U.S. stock and bond markets wrap up a three-day weekend — a much-needed break after a tumultuous week. The Dow Jones Industrial Average ended the week up nearly 3.5 percent. But it wasn’t easy.

The turmoil began a week ago Sunday, when JPMorgan Chase announced it was buying Wall Street rival Bear Stearns for the shockingly low price of $2 a share. The Federal Reserve helped bankroll the takeover, in order to keep Bear Stearns from going bankrupt, and potentially seizing up the whole financial system.

That was just the beginning of the Fed’s aggressive moves last week.

Chief financial economist Brian Bethune of the forecasting firm Global Insight says the Fed also opened its discount window to other investment banks for the first time since the 1930s. That allows the banks to unload their out-of-favor mortgage-backed securities.

Then on Tuesday, the Fed slashed interest rates by three-fourths of a percent.

“There have been a lot of fireworks from the Fed, in terms of really stepping up to the plate here and dealing with these issues,” Bethune says.

By week’s end, investors seemed to be drawing some confidence from the Fed’s moves.

But reports this coming week on February home sales are expected to show continued weakness in the housing market. And consumer confidence — already battered — is likely to fall further. The overall picture is of an economy in recession, Bethune says.

What’s less clear is how long it will last.

“We have this cumulative downward pressure that has been building up and now we have a substantial counterattack by the Fed to try and reverse it,” Bethune explains.

“So it remains to be seen over the next few weeks whether this is a key watershed, or whether it’s simply putting more fingers in the dike.”

Either way, traders may need their motion-sickness medicine: The Dow Jones has gained or lost more than 100 points on more than half the trading days so far this year.

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