Markets Hit Milestones; Goldman Sachs Gets Bashed

NPR's John Ydstie wraps up the week's economic news, looking at banking stress tests, the markets' performance and the Goldman Sachs resignation.

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JACKI LYDEN, HOST:

This is WEEKEND EDITION from NPR News. I'm Jacki Lyden. Checking on your retirement and mutual fund statements is getting a bit less scary. The stock market cleared another hurdle this week with the S&P 500 closing above 1,400 for the first time in almost four years, and the Dow Jones Industrials up almost 25 percent from their recent low back in early October. NPR's John Ydstie is here to tell us what's driving the market. John, thank you for coming in.

JOHN YDSTIE, BYLINE: You're welcome, Jacki.

LYDEN: So, some interesting numbers - and unemployment is still high, gas prices higher, deficits still extraordinarily large. Why are investors pushing stocks higher?

YDSTIE: The economy still faces some big challenges, but there were a number of things this week that provided some optimism. For instance on Tuesday, Federal Reserve officials offered a somewhat brighter view of the economy in the statement that they issued following their regular meeting. They used phrases like the economy has been expanding moderately, and the labor market has improved, and strains on global financial markets have eased - a reference to some lessening of the European debt crisis. The Fed officials were still guarded - not popping champagne corks - but investors responded very positively.

LYDEN: There was another thing that was interesting this week: the Fed issued another report card on some of the nation's big banks. And what did that tell us about the health of the economy?

YDSTIE: Well, it certainly suggested that the financial sector, which has been at the center of our economic problems, is healing. The Fed put the nation's 19 largest banks through another stress test to find out how many could continue to lend if the economy really tanked again. It found all but one of them had enough capital to absorb losses and continue operating. And passing the test means many of these banks were taken off this short regulatory leash they've been on, and that means they can boost dividend payments to shareholders and buy back stock. And this made investors much more interested in owning bank shares, and that helped boost the market.

LYDEN: But gasoline prices continued to rise this week. And certainly that is a drag on the economy?

YDSTIE: Yes, they did rise. They're up about 20 percent since mid-December, and closing in on $4 a gallon on average for regular. And it is a negative for the economy. It has hurt consumer sentiment. On the other hand, a report earlier this week showed retail sales rising and consumers continuing to spend. And remember, the unemployment rate is down. We've had the best three months of job creation in a couple of years. And consumers are spending less to heat their homes because of the warm winter. So, all that is helping to support confidence.

LYDEN: You know, with that sort of good news, is it too soon to say that a recovery is finally here?

YDSTIE: Well, we're in a recovery. It's very slow. And remember, both last year and the year before we started strong and then faded. There are still threats to this recovery; from rising oil prices, a potential confrontation with Iran, another flare-up in the European debt crisis, a slowdown in China. So there's plenty to worry about, though it does feel a little different right now.

LYDEN: John, there's one other story we noted in the news this week that we want to ask you about, and that is a story of a Goldman Sachs vice president named Greg Smith who resigned publicly from the investment bank in the op-ed pages of The New York Times. And he slammed the bank for what he said was a toxic culture at the firm and a disdainful attitude toward clients. Given the doubts that have already been raised around companies like Goldman Sachs, what impact do you think that's going to have on Americans' attitudes about Wall Street?

YDSTIE: Well, it certainly doesn't help. In his letter, Smith says that Goldman employees denigrated clients, calling them Muppets and tried to sell them products aimed only at maximizing profits for Goldman Sachs. We've heard similar stories before. You'll remember congressional hearings after the financial crisis where Goldman executives were condemned for selling financial products to clients and then betting against them. Smith's letter got a lot of attention. And things like this may be one of the reasons that small investors continue to be distrustful and have not really jumped back into the market.

LYDEN: Well, NPR's John Ydstie. Thank you very much for being with us today.

YDSTIE: You're welcome, Jacki.

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