By Bernard Condon, AP Business Writer
NEW YORK (AP) — Maybe Warren Buffett can strike a deal to buy the entire stock market, too.
At least the markets plan to open Monday, but after Federal Reserve Chairman Ben Bernanke announced no new program Friday to lift stocks, investors sold lots of them.
That set at least one Wall Street economist to musing whether Buffett might be willing to lend a helping hand instead.
"He could buy the entire S&P," Mizuho Securities' Steven Ricchiuto said in a nod to how Buffett's $5 billion investment in Bank of America Corp. sent its stock soaring just a day before. "But I don't think even he has enough money to do that."
In the event, no savior was needed, at least on Friday. As Bernanke spoke at a conference in Jackson Hole, Wyo., the Dow Jones industrial average fell hard, then reversed course to close at 11,284.54, up 4.3% for the week after being down the past four. Investors apparently reinterpreted the lack of any news of a new Fed stimulus to mean the central bank wasn't so worried about the economy after all, and maybe they shouldn't be either.
Still, investors are down 13% in a month, and few expect market turmoil to disappear soon.
The good news for stock investors is that most security exchanges said by Sunday afternoon that they planned to operate normally Monday, and stocks appear relatively cheap. Companies in the Standard & Poor's 500, a broader index than the Dow, are now trading at an average 11 times what Wall Street analysts expect them to generate in per-share earnings over the next twelve months. The long-term average is 15 times.
These earnings ratios are only one gauge of value, and analyst expectations of what companies can earn sometimes prove too high. So far, if anything, they've been too low. A report from research firm FactSet released Friday said 75% of companies that have reported earnings for the second quarter have beaten estimates.
More encouraging, the earnings themselves were up an average 11.8%. That is the seventh quarter in a row of gains greater than 10%.
The question is whether companies can keep increasing profits at such a fast clip despite high unemployment in the U.S., Europe's struggles with mounting government debt and sputtering recoveries in both places.
On Friday, the Commerce Department added to the grim picture with a new estimate that the U.S. economy grew at a 1% annual rate in the three months through June, weaker than its previous estimate of 1.3%. Nine of the past 11 recessions since World War II have been preceded by a period of growth of 1% or less.
Count Bernanke among the optimists. In his speech, the Fed chairman talked of the long-term strengths of the U.S. economy, saying that they "do not appear to have been permanently altered by the shocks of the past four years."
Next week could shed light on whether he's right.
The big news is the payrolls report on Friday, when the unemployment rate for August will also be released. There is plenty of other data that could move stocks leading up to that day.
Personal income and spending figures for July are released Monday. Spending by consumers typically accounts for 70% of the economy. Lately they're saving more: $5.40 of every $100 of after-tax income, up from a less than zero at the lowest level during in the boom years. On Tuesday, investors will be watching the S&P/Case-Shiller index on home prices for June.
On Thursday, the Institute for Supply Management publishes its manufacturing index. A year ago, Bernanke indicated in his annual speech at Jackson Hole that the Fed would launch a second round of Treasury bond purchases to help stimulate the economy. That pushed stocks up. Then a strong ISM manufacturing report came out and the rally really took off.
This time investors already know Bernanke isn't going to help them. The question is whether the ISM index will disappoint, too.
Talley Leger, an investment adviser and former strategist at Barclays Capital, thinks the index could fall, though he's still somewhat optimistic about the report. Leger said the index could drop below the key level of 50 that suggests manufacturing has started contracting. But he doesn't expect it to fall to a recessionary level of 42 or so. That means, he said, that stocks trading as if we're already in a recession may be worth buying — if the U.S. doesn't eventually fall into one.
"Stocks can get cheaper as the economy slows, but I'm 'long' them," said Leger, meaning he's bullish.
AP Business Writer Daniel Wagner in Washington contributed to this story.
Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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