In cautious trading, stock indices rise

On Wall Street on Friday, the S&P 500 and Nasdaq indices slightly rose, as investors hope that financial reform will not dent bank earnings as much as they feared, but trading was cautious due to a lack of encouraging news from the U.S. economy.

The Dow Jones index weakened by 9 points, or 0.09 percent, to 10,143 points, while the S&P 500 strengthened by 0.29 percent, to 1,076 points, and the Nasdaq index by 0.27 percent, to 2,223 points. Representatives of the House of Representatives and the Senate reached an agreement on Friday regarding a law that regulates a wide range of financial transactions, from credit cards to the most complex financial derivatives.

The law introduces a ban on banks trading their own assets, known as the ‘Volcker Rule’, and limits investment in hedge funds. It also establishes a system for warning about financial risks, creates a powerful consumer protection agency in lending, sets conditions for the liquidation of large financial firms on the brink of collapse, and introduces a package of new rules for financial derivatives.

This coordinated proposal needs to be voted on by both houses, which is expected to happen in early July. This proposal does not include some of the original proposals from the U.S. government, so investors hope that financial reform will not dent bank earnings as much as they feared. As a result, the S&P financial sector index, which fell 8.4 percent in the last quarter, rose 2.8 percent yesterday.

"The new regulation is less depressing than investors feared, so this coordinated bill has brought them relief," says Michael James, an analyst at Wedbush Morgan. However, the new macroeconomic data did not bring them relief. Indeed, consumer sentiment rose in June more than expected, but that data remained overshadowed by the final report on gross domestic product, which indicated that the U.S. economy grew by 2.7 percent in the first quarter, not 3 percent as previously reported.

"All recent reports indicate a slowdown in the recovery of the U.S. economy, and the GDP data confirmed those fears," says Chip Hanlon, president of Delta Global Advisors.

Throughout last week, the Dow Jones index weakened by 2.9 percent, while the S&P 500 fell by 3.6 percent, and the Nasdaq index by 3.7 percent, marking the second consecutive week of declines for these indices. On European exchanges, stock prices fell on Friday. The London FTSE index weakened by 1.05 percent, to 5,046 points, while the Frankfurt DAX fell by 0.73 percent, to 6,070 points, and the Paris CAC by 1.0 percent, to 3,519 points. (H)