Stocks Clinging to Their Gains
Mike Taylor
09/30/08 - 03:16 PM EDT
Updated from 2:26 p.m. EDT
Stocks in New York were holding to strong gains Tuesday following a massive selloff in the previous session.
The
Dow Jones Industrial Average was up 370 points at 10,735, and the
S&P 500 was adding 50 points to 1156. The
Nasdaq climbed 86 points to 2070.
On Monday, stocks got crushed after the
House of Representatives voted down the Treasury Department's $700 billion financial-sector stabilization plan. The Dow plunged 777 points, or 7%, its worst single-day loss ever in terms of points and its worst percentage loss since Sept. 17, 2001. The S&P 500 gave up 8.8%, and the Nasdaq fell 9.1%.
After Congress rejected the bailout, banks became increasingly worried about lending to one another, as the London interbank offered rate on overnight dollar loans skyrocketed more than four percentage points to 6.875%, a record high, according to
Bloomberg data.
On Monday, overnight dollar Libor, a measure of rates that a group of banks charge for short-term loans to other banks, stood at 2.57%.
Traders had anticipated passage of the Treasury's program, which would provide liquidity in installments to financial firms in exchange for mortgage-backed securities and other hard-to-value assets. Lawmakers are working to put together another proposal and quell the market's anxiety.
Phil Roth, chief technical analyst at Miller Tabak, had expected an upside open following Monday's big drop. He pointed out that the financial sector, which has been at the center of market turmoil, held lows established on Sept. 18. Those lows were higher than the ones reached in mid-July, which is encouraging, said Roth. Nevertheless, "I think we've got a long way to go before we can say we have a bottom for a whole bull market," he said.
"Once we get the stupid bill passed ... the market will have a little hoopla. And [then], people will say, 'Oh my God, we're in a recession.' That's the next shoe to drop, but that will take a while." Roth said that a lack of investment buying is the biggest problem the market faces, and long-term interest rates need to decline before stocks enter a bull market.
"There seemed to be a real disconnect between the perceived need that the market felt and the lack of understanding and resentment on the part of the general public, and so the market was just completely surprised when the package fell through," said Alan Gayle, senior investment strategist at RidgeWorth Financial.
Gayle said that the bill was designed to provide stability to financial markets, which is different from helping the economy as a whole. He said that after nine consecutive months of job losses, consumers are likely to remain stressed, even with successful passage of a stabilization bill. That consumer frustration, he said, was probably an important obstacle to the initial proposal.
"There is need for a package," said Gayle. "It's critical that we get orderly pricing on the distressed assets so that the market can move on." He said the extant plan was a good one, but that politics stymied the initiative.
Fitch Ratings said it may cut its credit rating on
Citigroup (C Quote) following the bank's announcement that it would buy
Wachovia (WB Quote) and take on $53 billion in Wachovia debt.
A report in the
Financial Times Monday indicated that
Goldman Sachs (GS Quote), which amid the credit crisis agreed along with
Morgan Stanley (MS Quote) to become a bank holding company instead of an investment bank, was looking to buy as much as $50 billion in assets from other banks.
As the credit crisis continued to manifest itself in Europe, the governments of Belgium, France and Luxemburg said they would allocate $9.24 billion in emergency funding to Belgian lending firm
Dexia. Dexia's Chairman, Pierre Richard, resigned along with CEO Axel Miller.
Outside the financials, pharmaceutical concern
Pfizer (PFE Quote) announced it will stop making medicine to treat
heart disease.
In the technology space,
Microsoft (MSFT Quote) CEO Steve Ballmer warned that all companies were vulnerable to the global economic crisis. He predicted a slowdown in spending by businesses as well as consumers.
Shifting to economic data, the Case-Shiller home-price index fell 16.35% year over year for July, a slightly wider decline than the 16% expected by economists.
The Chicago Purchasing Managers Association reported that its September manufacturing index came in at 56.7, above economists' estimates for a read of 54 but down from 57.9 in August. The Conference Board's consumer confidence index was at 59.8, well ahead of analysts' forecasts.
In commodities, crude oil was advancing $4.27 to settle at $100.64 a barrel. Gold lost $13.60 to $880.80 an ounce.
Longer-dated U.S. Treasury securities were falling in price. The 10-year was down 1-30/32 to yield 3.80%, and the 30-year was giving back 3-2/32, yielding 4.28%. The dollar was rising vs. its major foreign competitors.
Abroad, markets were mixed. The FTSE in London and the Dax in Frankfurt were ticking higher. The Hang Seng in Hong Kong closed with gains, while Japan's Nikkei ended on the downside.
