Stocks enjoyed their biggest day since last fall and hit their highest levels in more than a month, thanks largely to positive reaction to Treasury Secretary Tim Geithner's $1 trillion plan to help banks get rid of bad assets.
The Dow Jones Industrial Average soared 497 points, or 6.8%, to 7,776, its fifth biggest point gain ever and its fourth largest since the end of 2007.
The Standard & Poor's 500 Index was up 54 points, or 7.1%, to 823, and the Nasdaq Composite Index was up 99 points, or 6.8%, to 1,556.
The Dow and S&P 500 closed at their best levels since Feb. 13; the Nasdaq's close was its best since Jan. 9.
The gains were the best for the Dow and S&P 500 since Nov. 13, when the blue chips rose 553 points and the S&P 500 added 59 points. The Dow's percentage gain was its biggest since a 10.9% gain on Oct. 28. The Nasdaq had its biggest gain since rising 104 points or 11.6% on Oct. 13.
Futures trading suggests a slightly lower open for the major indexes on Tuesday. Still, a number of analysts said they believed the rally may continue for some time, with the S&P 500 rising perhaps to 900 before selling pressure starts to knock it down.
Financial stocks were the day's biggest winners, with Bank of America (BAC, news, msgs) soaring 26% to $7.80 and JPMorgan Chase (JPM, news, msgs) jumping 24.7% to $28.86. The two were the Dow's best performers and were eighth and 11th among S&P 500 stocks.
While the financial surge was the biggest factor in the rally, a better-than-expected report on existing-home sales for February and a rally in energy stocks built on higher oil prices also added to the market's strength.
In addition, Mark Mobius, a prominent money manager, declared that a new bull market had begun.
"You have to be careful not to miss the opportunity," Mobius, executive chairman at Templeton Asset Management in San Mateo, Calif., told Bloomberg Television. "With all the negative news, there is a tendency to hold back."
The Dow has jumped 18.8% since its closing low on March 9. The S&P 500 is up 21.6%, with the Nasdaq up 22.6%.
Stock Charts (Year)
JPMorgan Chase
Apple
Today's gains were very broad; all 30 Dow stocks were higher along with 493 S&P 500 stocks.
Meanwhile, 98 stocks in the Nasdaq-100 Index ($NDX.X), which tracks the 100 largest Nasdaq stocks, were higher, pushing the index up 73 points, or 6.1%, to 1,260. Leading the index were Apple (AAPL, news, msgs), up 6.1% to $107.66; Microsoft (MSFT, news, msgs), up 7.4% to $18.33; Qualcomm (QCOM, news, msgs), up 4.8% to $38.82; and Google (GOOG, news, msgs), up 5.6% to $348.60. (Microsoft is the publisher of MSN Money.)
And if the S&P 500 just breaks even in the next six days, it will finish March up about 12% -- its best monthly gain since January 1987.
The S&P Banking Index (BIX.X) was up 19.6% to 87; the index is down about 70% from the end of 2007. The Amex Securities Broker/Dealer Index (XBD.X) had added 14.3% to 82, although it, too, is off more than 60% from 2007.
In addition to the huge gains for Bank of America and JPMorgan Chase, Citigroup (C, news, msgs) was up 20.2% to $3.13, its best close since Feb. 13. Wells Fargo (WFC, news, msgs) rose 23.9% to $17.33.
Morgan Stanley (MS, news, msgs) was up 20.7% to $23.43. Goldman Sachs (GS, news, msgs) added 15% to $111.93. Mutual fund company T. Rowe Price (TROW, news, msgs) shot up 18.2% to $29.40 as investors bet that the rally over the last two weeks would attract more cash into the market.
Energy shares moved higher as crude oil closed up $1.73, or 3.3%, to $53.80. Exxon Mobil (XOM, news, msgs) was up 6.7% to $70.53; Chevron (CVX, news, msgs) added 6.9% to $69.15. Schlumberger (SLB, news, msgs) jumped 12.6% to $46.75.
All 19 stocks in the Philadelphia Semiconductor Index($SOX.X) were higher; the index was up 7.2% to 234. And 19 of 20 stocks in the Dow Jones Transportation Index($DJT) were up while the index rose 7.9% to 2,715.
The moving averages make a statement
One last sign of strength: The S&P 500 hit its 50-day moving average of 796 and moved 3.3% above it. Attempts last week to push the index across the moving average failed.The 50-day moving average has been watched as a gauge of investor confidence.
Moreover, the Dow, which had come close to its 50-day moving average, finally moved above it for the first time since January.
The Nasdaq crossed its 50-day average last week and finished 6.4% above it today.
Despite the big rally, interest rates were little changed. The yield on the 10-year Treasury note was at 2.66%, up slightly from Friday's 2.63%. The dollar, however, moved lower against the euro and British pound. It rose against the Japanese yen.
| Mon. | Fri. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Crude oil (NYMEX) (per barrel) | $53.80 | $52.07 | $1.73 | 20.20% | 20.63% |
| Heating oil (per gallon) | $1.4707 | $1.3834 | $0.0873 | 16.18% | 4.62% |
| Natural gas (per million BTU) | $4.2940 | $4.2270 | $0.0670 | 2.29% | -23.62% |
| Unleaded gasoline (per gallon) | $1.4881 | $1.4570 | $0.0311 | 16.19% | 47.60% |
So, just how big was the Dow's gain?
In percentage terms, the Dow's 6.8% gain was its 20th biggest. It followed the 10.9% rally on Oct. 28, 2008 and an 11.1% gain -- 936 points -- on Oct. 13, 2008.But gains this violent come only during times of extreme turmoil.
The Oct. 28 gain, the Dow's fifth largest, came after the index had lost 1,090 points over the prior five sessions. The Oct. 13 gain, No. 6 on the hit parade, came after the Dow had lost 24% of its value -- a horrifying 2,692 points -- over the prior 10 sessions.
A 10.2% gain on Oct. 21, 1987, the Dow's seventh largest gain, came two days after the 1987 crash that dropped the Dow 22.6%.
The biggest one-day gain was 15.3% on March 15, 1933 -- the first day of trading after the 1933 bank holiday. The Roosevelt Administration had ordered all banks closed to give it time to figure out which could be saved as the economy collapsed in the Great Depression.
Sixteen of the 20 biggest percentage gains for the Dow came between 1929 and 1939.
But the Street's mood improves
The big rally was an abrupt change in market mood from Thursday and Friday when Wall Street and Washington seemed to be at war with one another over the huge bonuses paid to executives of American International Group (AIG, news, msgs), the beneficiary of $173 billion in government help.The House of Representatives passed a bill to tax the bonuses at 90%. But the bill faces uncertain prospects in the Senate, and President Barack Obama wondered on "60 Minutes" Sunday night if the bill might be unconstitutional.
Today, New York Attorney General Andrew Cuomo, who is likely to run for governor next year, said that 15 of the 20 top recipients of those bonuses have agreed to return them. AIG, incidentally, was up 24.7% to $1.48.
How the Geithner plan is supposed to work
Geithner got a big stage to start unveiling his plan: the editorial page of The Wall Street Journal."Our approach shares risk with the private sector, efficiently leverages taxpayer dollars, and deploys private-sector competition to determine market prices for currently illiquid assets," he wrote in an op-ed piece. "Simply hoping for banks to work these assets off over time risks prolonging the crisis in a repeat of the Japanese experience."
Many economists believe that stagnant growth in Japan in the 1990s resulted from too limited government moves to fix an ailing banking sector.
The Treasury program will start with $75 billion to $100 billion in capital from the Troubled Asset Relief Program, and the government is banking on private investors providing 5% or more of the financing.
Applications to be a fund manager for the bad assets are due by April 10, and they must show that applicants can raise $500 million and have experience managing at least $10 billion in similar assets.
The banks will choose which assets they want to sell, and pools of assets will be auctioned off.
Financials pushed higher on the news. Today's announcement is a big test for Geithner. In early February, stocks tanked after Geithner introduced the government's plan to help the banks without giving enough details to satisfy investors and traders.
"Our judgment is that the best way to get through this is if we can work with the markets," Geithner told The Journal in an interview. "We don't want the government to assume all the risk. We want the private sector to work with us."
Skepticism over bank plan
Some experts believe that the administration's plan could face difficulty attracting private investors because of the anger surrounding the AIG bonuses.The big question will be what limits and rules will be imposed and whether investors would be vulnerable to retroactive changes.
"We expect that the participation in the program to be announced this coming week will be tepid at best" because of "fear that any action which puts them into the federal assistance plan will subject them to the chance of retroactive punishment and taxation," David Kotok, chairman and chief investment officer of Cumberland Advisors, told Bloomberg News.
Other concerns grew over how the assets will be priced.
"The big question is, what is the incentive for the banks to sell?" Dino Kos, managing director at Portales Partners and former executive vice president at the New York Fed, told Bloomberg. "What is the incentive for a hedge fund to pay a price close to where the banks have it marked at?"
But some private investors were interested in participating.
"We will be raising money on behalf of our clients," Larry Fink, chief executive of BlackRock, told The New York Times. "I don't see how Congress can interfere in this."
Some critics think the plan is all wrong. Paul Krugman, a winner of the Nobel Prize for economics and a columnist in The New York Times, has said the government should take over banks loaded with devalued assets, remove their top management, and dispose of the toxic securities.
Existing-home sales unexpectedly jump
People were buying a few more homes last month.Existing-home sales jumped 5.1% in February from January to a seasonally adjusted annual rate of 4.72 million units, a National Association of Realtors report said today. The rate was down 4.6% from a year ago and down 27% from the 2006 sales rate of 6.5 million homes. Still, on a percentage basis, the month-to-month gain was biggest since July 2003.
The increase was partly due to "deep price discounts," the trade organization said, and it was a surprise. Economists had expected a decline of 0.8% to 0.9%. The median sales price fell 15.5% to $165,400 from February 2008.
Stock Charts (Year)
Pulte Homes
D.R. Horton
Lender-owned properties represented 53.7% of February sales in the Las Vegas metro area, for example. The median price of a home in that market was $155,600 in February, down 37% from a year ago and 51% since a June 2006 peak of $315,000.
Inventories of unsold homes rose by 5.2% to 3.8 million. That represents a 9.7-month supply, unchanged from February. But the inventory estimate is down 18% from a peak of 3.9 million units, which was an 11-month supply.
That's a good sign, Michelle Girard, senior economist at RBS Greenwich Capital, told Bloomberg Television. But she added that the housing market has a long way to go. Many would-be buyers won't commit until they see more job and economic stability.
Homebuilding shares were higher on the news. Pulte Homes (PHM, news, msgs) was up 13.1% to $11.08. D.R. Horton (DHI, news, msgs) jumped 18.2% to $9.89.
Tiffany profit plunges
Tiffany (TIF, news, msgs) this morning reported a 76% drop in fourth-quarter profit as consumers stayed away amid the economic downturn.And investors didn't care, pushing the stock up 15.5% to $23.37.
Stock Chart (Year)
Tiffany
But sales fell 20% to $841.2 million, and Tiffany said full-year sales will be down 11%, with earnings between $1.50 and $1.60 per share. Analysts have been looking for earnings of $1.71 per share.
"We have not yet seen signs of an upturn in our business," Chairman Michael Kowalski said, adding that worldwide sales for the quarter-to-date dropped more than 20%. "Tiffany has clearly not been immune from global economic turmoil in recent months, and we are taking a cautious view to business conditions in 2009."
Obama's '60 Minutes' interview soothes markets
President Obama's Sunday night appearance on "CBS 60 Minutes" may have played a subtle role in soothing markets.The president defended Geithner on the show and said that Americans have to be patient about the government's plan to revive the economy and the troubled banking sector.
"It's going to take a little bit more time than we would like to make sure that we get this plan just right," Obama said.
Obama talked about helping the financial sector. "Main Street has to understand, unless we get these banks moving again, then we can't get this economy to recover," Obama said.
But the president also said that a House bill to tax bonuses "could be unconstitutional." Outrage erupted last week about the AIG bonuses, and the House then passed a bill to tax at 90% the employee bonuses at companies like AIG and others that received funds from the Troubled Asset Relief Program.
Obama's interview came a week after an appearance by Federal Reserve Chairman Ben Bernanke, the first in 20 years since Alan Greenspan did an interview in 1987. Bernanke expressed optimism about the economy in his interview.
Sunday night, Obama reinforced that message, as much in his manner as in his spoken message. The president smiled and joked about the difficulties confronting the country.
The Fed last week announced plans to inject $1.1 trillion into the economy through purchases of Treasury securities and mortgage-backed securities.
Andrew Rosenbaum contributed to this report.
| Mon. | Fri. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Treasurys | |||||
| 13-week Treasury bill | 0.190% | 0.200% | -0.010 | -24.00% | 65.22% |
| 5-year Treasury note yield | 1.681% | 1.638% | 0.043 | -16.78% | 8.38% |
| 10-year Treasury note yield | 2.660% | 2.625% | 0.035 | -12.53% | 18.54% |
| 30-year Treasury bond yield | 3.693% | 3.654% | 0.039 | -0.78% | 37.24% |
| Currencies | |||||
| U.S. Dollar Index | 83.950 | 84.340 | -0.390 | -4.76% | 2.19% |
| British pound in dollars | $1.4579 | $1.4484 | 0.0095 | 1.79% | -1.05% |
| Dollar in British pounds | £0.6859 | £0.6904 | -0.0045 | -1.76% | 1.06% |
| Euro in dollars | $1.3648 | $1.3643 | 0.0006 | 7.63% | -2.58% |
| Dollar in euros | € 0.7327 | € 0.7330 | -0.0003 | -7.09% | 2.65% |
| Dollar in yen | 96.87 | 95.60 | 1.27 | -0.76% | 6.86% |
| Canadian dollar in U.S. dollars | $0.818 | $0.808 | $0.0106 | 4.16% | 0.04% |
| U.S. dollar in Canadian dollars | $1.223 | $1.238 | -$0.0152 | -4.00% | -0.04% |
| Commodities | |||||
| Gold | $952.50 | $956.20 | -$3.70 | 1.06% | 7.71% |
| Copper | $1.8410 | $1.7960 | $0.04 | 19.66% | 30.57% |
| Silver | $13.8750 | $13.8400 | $0.04 | 5.84% | 22.53% |
| Corn | $3.9550 | $3.9650 | -$0.01 | 12.76% | -2.83% |
| Crude oil (NYMEX) (per barrel) | $53.80 | $52.07 | $1.73 | 20.20% | 20.63% |