NEW YORK — A clear improvement in the Federal Reserve’s economic outlook, and a solid outcome of the Fed’s stress tests for major banks, gave the markets another strong two percent-plus boost this week.
The major indices reached multi-year highs, the Dow breaking solidly through the 13,000 point barrier, the S&P 500 edging over 1,400, and the Nasdaq Composite plowing past 3,000 all in the same week.
By the close of trade Friday, the Dow Jones Industrial Average was up 2.39 percent for the week to 13,232.62, a level last seen on January 3, 2008.
The S&P gained 2.43 percent to 1,404.17, its best level since May 2008.
The Nasdaq earned 2.24 percent in the week, closing at 3,055.26, its highest level since November 2000, when it was crumbling in the burst of the dot-com bubble.
While stocks appeared ready to drift all week despite the advances on the Greek bailout in Europe, an improvement in the Fed’s view of the economy on Tuesday gave traders a bit of reason to buy.
The central bank slightly upgraded its outlook, saying the jobs market and consumer and business spending had improved since January.
But the real burst in buying came near the end of Tuesday’s session when it leaked out that most of 19 big banks had passed the Fed’s tough stress tests for capital adequacy.
That sent bank shares soaring, helped as several banks subsequently announced dividend increases and share buybacks.
“Not one bank was ordered to recapitalize. That’s different from three years ago when they were all ordered to recapitalize,” said Erik Oja, a Standard & Poor’s analyst.
“And that’s very impressive with respect to European banks which basically have to recapitalize,” he added.
The biggest beneficiary from Bank of America, whose share ended up 21.7 percent for the week after some analysts upgraded their price targets.
Wells Fargo rose 7.0 percent, JPMorgan Chase 8.6 percent, and Goldman Sachs 4.8 percent for the week.
Even rising were shares of Citigroup, the largest of four banks which failed the test and whose dividend plan was rejected by the Fed.
Citi declared the tests untransparent and unfair, which perhaps helped it put on 7.3 percent for the week.
Goldman’s shares also weathered the shock of a sharp attack on its attitude toward its customers by a resigning executive director in its London office.
Greg Smith said Wall Street’s most powerful investment bank had lost its way, “ripping off” customers for all it can get.
“I can honestly say that the environment now is as toxic and destructive as I have ever seen it,” he said in a column in the New York Times.
Goldman’s shares plummeted 3.0 percent on worries it would damage its reputation, but rebounded over the next two days for a solid weekly gain.
Apple was another big gainer in the week that it launched a new version of its hit iPad. It briefly topped the $600 market after two key tech analysts boosted their price targets to above the $700 line, before easing back for a 7.4 percent gain for the week, to $585.57.
A handful of data releases, including a surprise downturn in the University of Michigan consumer confidence index, muddied the upbeat picture of the economy on Friday and put a hold on any more gains.
Analysts remained mixed on whether Fed chief Ben Bernanke’s extremely restrained view of the economy’s growth potential was excessively bearish or not.
“We are convinced Bernanke is reading the economic tea leaves accurately,” said Chris Low of FTN Financial.
“The balance between economic negatives – three consecutive months of no growth in consumer spending, slowing demand for exports, slowing growth in business investment and less federal spending – outweigh the economic positives – faster job growth, a lower unemployment rate and fewer layoffs.”
“But it could be two or three months before the Fed chairman is vindicated.”
For the upcoming week, the data releases will likely give more insight into the direction of the housing sector, which Bernanke sees as a very heavy anchor on growth.
Releasing include housing starts in February (Tuesday); existing home sales (Wednesday); and new home sales (Friday).