What Plunge? September Is Good To Wall Street

After a tumultuous and brutal August, the stock market has regained its footing and is within striking distance of the records it set in July.

The upsurge began building a few weeks before the Federal Reserve cut interest rates last week and has come at a time when the news from the housing market continues to remain bleak. Conditions in the debt markets have eased somewhat, but specialists say they remain much tighter than they were earlier this year.

Since Aug. 15, when the stock market hit its lowest point in five months, the Standard & Poor’s 500 stock index is up 8.5 percent and the Dow Jones industrial average has climbed 8 percent, coming back within range of its 14,000 peak. The increase has erased much of the decline from late July and the first half of August and left the indexes up modestly for the third quarter, which ends today.

“It’s kind of amazing how well equities have held up,” said Douglas M. Peta, chief market strategist at J. W. Seligman & Company, an investment firm in New York. “If you went away sometime in July and came back about now, you might say nothing happened while I was gone.”

In today’s trading, the main indexes were off modestly, with the Dow industrials closing down about 0.1 percent, at 13,895.63. But that still left the Dow and the Nasdaq composite showing gains of more than 11 percent so far this year, and the S.&P. 500 is up almost 8 percent.

The market appears to be buoyed by a belief that the problems in the housing and credit markets will not be severe enough to pull the broader economy into a recession and that growth in Europe and Asia will help offset those ill effects. The optimism is most vividly manifest in the performance of foreign stock markets, particularly those in the fast developing nations like China and India. One widely followed index that tracks emerging markets is up about 24 percent since Aug. 16, when it hit a low point. Markets in developed countries excluding the United States are up about 12 percent in the same time.

Even in the United States, the market’s return has been led by industries like materials, energy, technology and industrials that investors believe are best positioned to take advantage of the growth in foreign markets. By contrast, the financial and consumer discretionary sectors have lagged because they are seen as having the most to lose from a declining housing market and slowing consumer spending domestically.

“It just seems investors are now betting on the developing world and sectors within the U.S. that are exposed to developing world and shunning financials and consumer discretionary,” Mr. Peta said.

That view is also reflected in the depreciating dollar, which dropped today to $1.4265 against the euro, a new low. The dollar has fallen 2.8 percent against the euro since Sept. 14, when the Fed cut interest rates, and it is down 8 percent for the year. Gold prices rose 1.4 percent, to $742.80 a troy ounce, the highest price the metal has traded for since 1980.

Going forward, the futures market are forecasting that the Fed will cut its benchmark short-term interest rate, now at 4.75 percent, at least once more, to 4.5 percent, before the end of the year. The Fed’s policy-making committee meets again on Oct. 30-31, and once more, on Dec. 11, before the end of the year.

One Fed official, William Poole, said today that “it would be a mistake for markets to bake into the cake the assumption of ongoing rate cuts,” according to a report by Bloomberg News. Mr. Poole, who is president of the Federal Reserve Bank of St. Louis, was responding to a question after giving a speech in New York. He noted that he was expressing his own views and not speaking on behalf of the Fed.

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