Stock rally heats up
Dow up more than 300 points on Obama comments on economy, hopes for automakers
Stocks surged Monday on signs that the automakers will be able to avoid bankruptcy and President-elect Barack Obama’s proposed stimulus plan.
The Dow Jones industrial average (INDU) jumped 311 points, or 3.6%, more than 90 minutes into the session. The Standard & Poor’s 500 (SPX) index added 3.6% and the Nasdaq composite (COMP) gained 3.2%.
Stocks surged Friday, erasing morning losses after a brutal November employment report, as investors extended the recent trend of buying despite bad news.
That turnaround was key, said Dave Hinnenkamp, CEO at KDV Wealth Management. “We had bad news and the market rallied anyway.”
That trend continued Monday morning, with the automakers and the financial shares leading the way.
“The bottoming process is taking place,” Hinnenkamp said. He said that the market has priced in a lot of gloomy news and that the lows hit in late November were significant.
Between closing at an all-time high on Oct. 9, 2007 and the recent closing low on Nov. 20, the S&P 500 plunged 52%.
As of Friday’s close, stocks have rallied 16% off that November low. While that trend is encouraging, markets are going to remain volatile for some time, with the economic news expected to get worse before it gets better.
Automakers: Reports surfaced late Friday that Congress and the White House are working on a $15 billion to $17 billion loan package for the Big Three automakers.
The loan is short of the $34 billion the industry asked for last week. But it would be enough to serve as a stopgap measure, keeping General Motors, Ford Motor and Chrysler out of bankruptcy through at least the end of March, giving the new administration time to come up with a longer-term solution.
Meanwhile, President-elect Obama and others in Congress are suggesting a change at the top may be needed. (Full story)
GM (GM, Fortune 500) shares gained 18%, while Ford Motor (F, Fortune 500) rose 17%.
Company news: Dow Chemical said it will cut 5,000 full-time jobs, or around 11% of its workforce, close 20 plants and sell several businesses to cut back amid the recession. Nonetheless, Dow (DOW, Fortune 500) shares gained 7%.
Last week, AT&T (T, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and other companies announced more than 40,000 job cuts.
Among other stock movers, financial shares jumped, including Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500), JP Morgan Chase (JPM, Fortune 500), Merrill Lynch (MER, Fortune 500) and Goldman Sachs (GS, Fortune 500).
Market breadth was positive. On the New York Stock Exchange, winners topped losers by over five-to-one on volume of 440 million shares. On the Nasdaq, advancers topped decliners by over three to one on volume of 630 million shares.
Obama on the economy: Investors also responded to the President-elect’s comments over the weekend. Saying that America is facing a financial crisis that is going to get worse, the priority is to create a recovery plan that is equal to the task.
He told NBC’s “Meet the Press” that the priority will be to create an economic stimulus plan that is big enough to actually help the economy, even if it means expanding the deficit in the short-term.
Markets around the globe rallied on bets that world economies will continue to take steps to get their economies moving forward again. In Asia, the Japanese Nikkei rallied 5.2% and the Hong Kong Hang Seng gained 8.7%. In Europe, the London FTSE jumped 5.8% in late afternoon trading.
Bonds: Treasury prices were little changed, with the yield on the benchmark 10-year note at 2.70%, roughly where it stood late Friday. The 10-year yield dipped below 3% last month for the first time since the note was first issued in 1962. Treasury prices and yields move in opposite directions.
The yield on the 3-month Treasury bill stood at 0.015%, unchanged from late Friday and near the 68-year low of zero hit last month. The bill is seen as the safest place to put cash in the short term. The low yield means investors would rather preserve cash despite little or no interest than risk it in the stock market.
Lending rates improved modestly. The 3-month Libor rate held steady at 2.19%, unchanged from Friday, according to Bloomberg. The overnight Libor fell to a record low of 0.19% from 0.28% Friday. Libor is a key bank lending rate.
Other markets: The dollar gained versus the yen but fell against the euro.
U.S. light crude oil for January delivery rallied $2.99 to $43.80 a barrel on the New York Mercantile Exchange, after ending the previous session at a four-year low.
COMEX gold for February delivery rallied $23.80 to $776 an ounce.
Gasoline continued its fall to nearly four-year lows, with prices down 1.7 cents to a national average of $1.716 a gallon, according to a survey of credit-card swipes released Monday by motorist group AAA. Prices have been sliding for 2-1/2 months and have dropped more than $2 a gallon, or 55%.
Discussion Area - Leave a Comment
You must be logged in to post a comment.