Stocks Close Sharply Higher; End Volatile Week In The Green - U.S. Commentary

Fri. September 19, 2008; Posted: 04:44 PM

(RTTNews) - Stocks turned in a standout performance on Friday, adding to substantial gains posted in the previous session to erase the selloff seen earlier in the week. The strength came amid a series of government initiatives to help deal with the credit crisis that has been plaguing the financial markets.

Earlier in the day, Treasury Secretary Henry Paulson outlined his department's plan to establish a trust fund to absorb banks' bad debts, stating that, despite the cost taxpayers will have to bear for the fund, the alternative would have been far worse.

Paulson said the most recent proposal would address the "root cause" of the financial crisis: mortgage-backed securities stemming from the housing crisis.

Dr. Lawrence White, Professor of Economics at NYU's Stern School, told RTT News that the Treasury's plan "Will probably work, but the real question is: at what cost to the tax payer." White added, "The devil is in the detailsâ€¦. it's all in the details, in fact, it's all in the price."

Meanwhile, the Treasury Department also established a temporary guaranty program for the money market fund industry, while the Federal Reserve Board announced two new enhancements to existing programs to promote liquidity.

The first initiative extends the realm of non-recourse loans at the primary credit rate to U.S. depository institutions and bank holding companies. The second initiative will allow the Federal Reserve to buy federal agency discount notes from primary dealers. These notes are short-term debt obligations issued by Fannie Mae (FNM | Quote | Chart | News | PowerRating), Freddie Mac (FRE | Quote | Chart | News | PowerRating) and the Federal Home Loan Banks.

Wall Street also got a boost when the government issued a temporary ban on short selling for a list of nearly 800 financial firms. The combination of the short sale ban and the fact that it was a "quadruple witching" or an option and futures expiration, made for a bullish day in the markets.

In an interview with RTT News, Russell Lundeberg, chief investment officer at Barrett Capital Management discussed the Fed, Treasury and SEC's latest efforts to stem the financial crisis. He said that the government realized "they needed to do something that was above and beyond just playing catch up" and although "a lot of the details have yet to be worked out," it "seems like this might be enough to bring that confidence back into the market."

The major averages moved to the upside in the final hour of trading, but they ended the day well off of their session highs. The Dow closed up 368.75 points or 3.4 percent at 11,388.44, the Nasdaq closed up 74.80 points or 3.4 percent at 2,273.90 and the S&P 500 closed up 48.56 points or 4 percent at 1,255.07.

While stocks saw considerable weakness early in the week, the major averages rebounded in the last two days to close modestly higher. The Dow ended the week up 0.3 percent, while the Nasdaq and the S&P 500 posted weekly gains of 0.6 percent and 0.3 percent, respectively.

Sector News

The financial sector, including both brokerage and bank stocks, contributed to the strength seen in the broader markets, as investors reacted to the government's plan to end the liquidity crisis.

Most resource stocks also saw significant buying interest, boosted by an increase in commodity prices. The Amex Steel Index posted a gain of 11.6 percent, adding to a notable gain posted in the previous session. The index had been trending lower for past two months, setting a yearly closing low on Wednesday.

Elsewhere in the resource sector, oil and oil service stocks closed sharply higher. The Amex Oil Index closed up 7.7 percent, while the Philadelphia Oil Service Index climbed 8.2 percent.

Crude surged in afternoon trading on Friday, closing above $104 a barrel. Light sweet crude for October delivery ended the day at $104.55 a barrel, up $6.67. The rebound more than erased the sharp drop towards $90 a barrel that crude saw earlier in the week.

As investors digested how the government plans will help the housing sector, housing stocks posted substantial gains as well. The Philadelphia Housing Index rose 7.1 percent, setting a four-month closing high. Health insurance, disk drive and wireless stocks also saw notable gains.

Dow Components

Most of the Dow components ended the day with substantial gains, sending the blue chip index sharply higher. Of the 30 stocks that make up the Dow, only 7 ended the day lower.

Bank of America (BAC | Quote | Chart | News | PowerRating) posted a substantial gain as well. The stock closed up 22.6 percent, adding to a strong gain posted in the previous session. Shares of Bank of America closed at their best level in four months. Last weekend, the bank announced that it is acquiring investment firm Merrill Lynch (MER | Quote | Chart | News | PowerRating) for $50 billion in an all stock deal.

Boosted by the increase in oil prices, Chevron (CVX | Quote | Chart | News | PowerRating) also ended the day sharply higher. The stock closed up 5.9 percent, adding to Thursday's gain. Shares of Chevron set a monthly closing high with the gain.

Other Markets

Stock markets across the Asia-Pacific region rallied on Friday, mirroring Wall Street's steep gains overnight. The Hong Kong market and the Chinese markets surged up more than 9 percent each, while Japan's Nikkei index gained 3.4 percent.

The major European markets turned in standout performances as well, with the French CAC 40 and the German DAX Index ending the day up 9.3 percent and 5.6 percent, respectively, while the U.K.'s FTSE 100 Index advanced 8.8 percent. The buoyancy was attributed to the banning of short selling and the reports of a U.S. government rescue plan for the beleaguered financial firms.

Meanwhile, treasuries ended Friday's session sharply lower. The benchmark ten-year note started the day considerably weaker and it traded in a range just off of its intraday low throughout the session. Subsequently, the yield on the ten-year note closed up 33.2 basis points at 3.769 percent, its best yield since the end of August.

Looking Ahead

Looking ahead to next week, the markets may be affected when the Department of Commerce releases its report on durable good orders report as well at its final reading on second quarter Gross Domestic Product. A weekly report on initial jobless claims, a report on consumer sentiment and a report on existing home sales may also give investors an idea over the health of the economy.

Several Federal Reserve members will also be making appearances next week, including Fed Chairman Ben Bernanke, who will be testifying on the economy before Congress on Wednesday. Dallas Fed Bank President Richard Fisher, Richmond Fed Bank President Jeffrey Lacker, Chicago Fed Bank President Charles Evans, and St. Louis Fed Bank President James Bullard will be speaking throughout the week as well.

More News: Market Updates | Stock Alerts | All Trading News | Stock Index

Archives

Feedback

Email Article Link

Close X

RELATED SITES

Please call 1-213-955-5858 ext. 1

Tax Relief Bank Levy Wage Garnishment

Disclaimer:

The Connors Group, Inc. ("Company") is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. The analysts and employees or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in trading securities and/or currencies. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. Factual statements on the Company's website, or in its publications, are made as of the date stated and are subject to change without notice.

It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all other features of Company's products (collectively, the "Information") are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company's website are for educational purposes only. Such set-ups are not solicitations of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

The Connors Group, Inc.
15260 Ventura Blvd., Ste. 2200
Sherman Oaks, CA 91403

All analyst commentary provided on TradingMarkets.com is provided for educational purposes only. The analysts and employees or affiliates of TradingMarkets.com may hold positions in the stocks or industries discussed here. This information is NOT a recommendation or solicitation to buy or sell any securities. Your use of this and all information contained on TradingMarkets.com is governed by the Terms and Conditions of Use. Please click the link to view those terms. Follow this link to read our Editorial Policy.