Stocks continue to ride the wave of a financial sector rebound. After a hesitation on Monday, the market picked back up with a rally that is now about a week long. The Dow gained 179 points on Tuesday (March 17). The main driver of the recent gains has been the battered credit sector.

Citigroup Inc (C) closed Tuesday at $2.51 and climbed another $.08 in the after-hours trade. It was this bank’s announcement last week that jump started the rally. Citi announced that it had operated with a profit for the first two months of 2009. This was tremendously welcomed news for investors and consumers waiting for something positive. Prior to the news, Citi stock had dipped below $1. It has now climbed over 250 per cent in a week’s time.

Of course the recent rally has given many savvy investors a chance to pocket some nice gains. Analysts have been building up the potential that anyone who manages to accurately time the bottom of the financial markets could see a hefty gain on the rebound. The challenge for anyone is to overcome the natural fear and panic that the rebound may never come. Add to that the reality that many average Americans do not have money to put into stocks, which leaves funds and investment houses to pocket the winnings.

The success in the sector has been pretty widespread. Heartland Financial, a full services retail bank closed at $12.33 Tuesday. The company’s stock traded below $9 before the rally began. At the market’s peak over a year ago, Heartland traded near $30 per share. T. Rowe Price Group, a publicly owned investment holding company, has bouned off a 52-week low of $20.09 to trade at $26.33.

Even AIG, the most controversial company in the credit market, gained $.13 to trade at $.99 Thursday. AIG has not won the PR battle of late, though. The company has been getting hammered by the press, and the Obama Administration for its decidion to pay out $165 million in bonuses to around 80 executives, several of whom are not even employed by the company anymore. The Administration and Congress are discussing options to recoup some of the money, given the billions in bailouts AIG has received.

The challenge with AIG is that despite government pressure and public backlash, all parties seem to have conceded that AIG cannot be allowed to fail. The size of the fallout in broad economy and to the financial scope of everyday Americans would be to big, according to analysts and government officials. So, unfortunately, even if the company “misbehaves”, it is likely they would receive additional funds if necessary for survival.

The big question on the minds of the investor and typical American now is, has the economy bottomed or is this simply an emotional bounce from one bit of good news. A strong data report about February new construction homes helped support the notion of a potential bottom. Housing and credit are seen as main sectors that will lead the economy out of its pit of despair.

Neil Kokemuller
10:41 PM EST
Tuesday, March 17, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.
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