Stocks Close Rocky Day With Modest Gains - TheStreet

Stocks Close Rocky Day With Modest Gains

Investors digests congressional testimony, encouraging June retail sales figures and M&A news in the chemicals space. Frank Curzio weighs in with The Real Story (above).
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Updated from 2:48 p.m. EDT

Stocks in New York finally closed higher after bobbing above and below the flat line Thursday. Investors digested congressional testimony from Treasury Secretary Henry Paulson and

Federal Reserve

Chairman Ben Bernanke, along with mixed employment data and a surge in oil.

The

Dow Jones Industrial Average

gained 82 points to 11,229, and the

S&P 500

was up 9 points at 1253. The

Nasdaq

advanced 23 points to 2258.

The Wall Street Journal

reported that the Bush administration has discussed potential plans

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

. Shares of both companies have fallen sharply of late on concerns about their capital levels. Meanwhile, former St. Louis Federal Reserve President Bill Poole told

Bloomberg

that Fannie and Freddie are "insolvent." Shares of Fannie and Freddie were down 13% and 26%, respectively.

Fannie and Freddie together have less than $90 billion in capital reserves, which amounts to less than 2% of potential liabilities, said Peter Schiff, president of Euro Pacific Capital, in an email. Furthermore, many of the loans carried by Fannie and Freddie are low doc or no-doc ARM's with negative equity, he wrote in an email. "Clearly,

Fannie and Freddie would have no ability to survive without a government bailout."

Elsewhere in the financial sector,

Wachovia

(WB) - Get Report

announced Wednesday following the market close that Treasury Undersecretary Robert Steel would be taking over as CEO but also warned that it will lose between $2.6 billion and $2.8 billion in the second quarter before goodwill charges. Fannie and Freddie were recently down 12% and 20%, respectively.

In a bright spot for the financials,

Bank of America

(BAC) - Get Report

CEO Kenneth Lewis announced today that the company would not have to cut its dividend or raise capital.

Fitch Ratings said

Merrill Lynch

(MER)

is at risk for a downgrade of its credit and maintained its ratings on

Lehman Brothers

(LEH)

,

Goldman Sachs

(GS) - Get Report

and

Morgan Stanley

(MS) - Get Report

. It said Lehman and Morgan remain at risk for a downgrade.

Testifying before a Congressional panel, Ben Bernanke said that the credit crisis remains a problem and called for additional power for the Fed to oversee the financial world. Speaking at the same event, Henry Paulson said that Fannie and Freddie are important parts of the U.S. housing market and should remain so. He also said that financial institutions should not expect the government to bail them out.

The important message from Bernanke and Paulson is that the Treasury and Fed are aware that the financial markets are still under considerable stress, said Ethan Harris, chief U.S. Economist at Lehman Brothers. Harris said that the pair have been improvising in the short term to prevent further crisis rather than wait for Congress to intervene. "Better to strike when the iron is hot and improve regulation," he said.

"They want to have a better-designed and clear emergency response system. Too many things have had to be done on an ad-hoc basis, and I think that's a mistake," said Harris. "It's much too early for the Treasury and the Fed to declare victory and sit back and relax."

One of the top stories of the morning was a merger deal that will see

Dow Chemical

(DOW) - Get Report

buy

Rohm & Haas

(ROH)

for $78 a share, or more than $15 billion.

Meanwhile, industrial conglomerate

General Electric

(GE) - Get Report

announced it will spin off its Consumer & Industrial business, which makes lighting and electrical switches, among other things, to existing shareholders.

Dow component

General Motors

(GM) - Get Report

led the index lower, falling 7% following an announcement that

Toyota

(TM) - Get Report

would begin building its Prius hybrid in the U.S. to meet stateside demand for more fuel-efficient vehicles.

In the retail space, the nation's chain stores were reporting their monthly results.

Wal-Mart

(WMT) - Get Report

said same-store sales climbed 5.8% in June, excluding fuel sales. The world's biggest retailer also lifted its second-quarter profit outlook.

Costco

(COST) - Get Report

said same-store sales rose 9% in June, beating analyst expectations.

Elsewhere, the

Journal

also reported that

Merck

(MRK) - Get Report

,

Eli Lilly

(LLY) - Get Report

and

Pfizer

(PFE) - Get Report

plan to collaborate to cut costs related to getting new drugs approved.

On the commodities side, crude oil was up $5.32 at $141.37, as Iran conducted further missile tests, sparking investor's supply concerns. Gold was gaining $15.10 at $943.70.

As to economic data, RealtyTrac reported that June foreclosure filings in the U.S. rose 53% year over year to 252,363 homes, indicating that America's housing situation remains grim.

The U.S. Department of Labor said jobless claims for the week ended July 5 declined by 58,000 to 346,000, a lower figure than analysts' prediction of 395,000. A Labor Department analyst advised, however, that the drop was due to difficulties adjusting the data for seasonal shutdowns at auto plants. Accounting for such discrepancies, jobless claims actually increased by 30,000.

Treasuries were experiencing mixed action. The 10-year note was up 1/32, yielding 3.81%, and the 30-year was climbing 2/32 to yield 4.42%. The dollar was slipping against the euro, but higher against the yen and pound.

Abroad, European exchanges were generally weak, while Asian markets gained slightly. London's FTSE, Frankfurt's DAX and the Paris Cac were all trading lower, while Japan's Nikkei and Hong Kong's Hang Seng were ticking upward.