advertisement
Article Tools
| Currency | US Dollar |
|---|---|
| British Pound to US Dollar | 1.633720 |
| Euro to US Dollar | 1.398406 |
| Japanese Yen to US Dollar | 0.010414 |
| Canadian Dollar to US Dollar | 0.861846 |
Stocks look to open higher on Monday on news that the federal government will guarantee billions of dollars of bad assets from banking giant Citigroup (C, news, msgs).
Futures trading late Sunday had been trending lower for much of the evening.
But trading in futures on the Dow Jones industrials, the Standard & Poor's 500 Index and the Nasdaq-100 Index ($NDX.X) turned higher on reports in The Wall Street Journal, The New York Times and elsewhere that the Treasury Department, Federal Deposit Insurance Corp. and the Federal Reserve would provide assistance to the troubled banking company.
The Citigroup news followed a big rally on Friday set off by news that President-elect Barack Obama would nominate Timothy Geithner as Treasury secretary. Geithner is now the president of the New York Federal Reserve Bank.
The Dow Jones industrials closed up 494 points, or 6.5% to 8,046.42, up 6.5%. The Standard & Poor's 500 Index was up 48 points, or 6.3%, to 800, and the Nasdaq Composite Index jumped 5.2% to 1,384.
Under the plan that emerged late Sunday, the Treasury will inject $20 billion new capital into Citigroup, taking back notes paying 8% a year.
The government will also guarantee a pool of up to $300 billion in troubled assets, The Journal said.
Citigroup must absorb the first $37 billion to $40 billion in losses from these assets. If losses extend beyond that level, Treasury will absorb the next $5 billion in losses, followed by the FDIC taking on the next $10 billion in losses. Any losses on these assets beyond that level would be taken by the Fed.
Citigroup would also try to modify troubled mortgages held in the $300 billion pool, using standards created by the FDIC after the collapse of IndyMac Bank.
The government is not expected to require any management changes, The Journal said, because it might destabilize Citigroup.
Existing shareholders could be losers under the new plan, The Times said. If the government has to take on larger-than-agreed-upon losses, it would receive a stake in Citigroup that could potentially hurt existing shareholders.
The plan is like to generate plenty of criticism, especially from smaller banks that couldn't win similar government help.
"There is no question that Citi is in the category of 'too big to fail,'" New York money manager Michael Holland told Bloomberg News. "There is a commitment from this administration and the next to do what it takes to save Citi."
Once the biggest U.S. banking company with a market capitalization of $274 billion at the end of 2006, Citigroup was worth just $20 billion based on Friday's close and was only the fifth most valuable banking company.
| Last Price | Change | Market capitalization | |
|---|---|---|---|
JPMorgan Chase | $22.72 | -$0.66 | $84.80 billion |
Wells Fargo | $21.76 | -$0.77 | $72.36 billion |
Bank of America | $11.47 | $0.22 | $57.55 billion |
U.S. Bancorp | $22.53 | $0.41 | $39.53 billion |
Citigroup | $3.77 | -$0.94 | $20.54 billion |
All hail the Geithner rally
The Dow took off Friday in a rally that signaled Wall Street's enthusiasm for President-elect Barack Obama's economic team.All of the day's gain came in the last 65 minutes of trading after news broke that Obama would nominate Geithner as Treasury secretary.
In addition, former Treasury Secretary Larry Summers apparently will be part of the new administration.
The abruptness of the rally was a classic snapback rally after three big losses in the prior four days and left open the question of whether the rally could continue next week.
Snap-back rallies in the middle of sell-offs are typically short-lived. Meanwhile, several important economic reports, particularly existing-homes sales on Monday and new-home sales on Wednesday, are likely to deliver rotten news.
The long Thanksgiving weekend will slow activity substantially. Markets will be closed Thursday, with only a half-day on Friday.
In addition, the Citigroup question as well as worries about automakers will hang over the market.
Attempts to win bailout legislation in Congress this past week stalled, and many analysts have been worried that General Motors (GM, news, msgs) and Chrysler may not have enough cash to stay alive until a new attempt at legislation can pass.
The Geithner news cheered Wall Street because many traders had concluded, rightly or wrongly, that the Bush administration wasn't prepared to make major decisions after Obama's Nov. 4 election. Geithner would replace Hank Paulson.
Moreover, there was concern that Obama had been too far in the background since the election at a time when severe economic stress requires strong political leadership.
Geithner has worked both for the central bank and the Treasury Department.
He has been deeply involved in the financial crises of the last year. Critics say the government's decisions -- especially the decision to let investment house Lehman Bros. fail on Sept. 15 -- have damaged the economy.
The Dow has fallen nearly 3,900 points since the Lehman failure, and only one stock in the S&P 500 -- wine and chewing tobacco maker UST Inc. (UST, news, msgs) -- can say it had a gain during that period.
Friday's rally took back 57% of the 872 points the market lost on Wednesday and Thursday. The sell-off had pushed the S&P 500 to lows last seen in 1997 and brought the decline in U.S. stocks since their peaks in October 2007 to about 50%.
That's the biggest decline for U.S. stocks overall since it fell about 83% between March 1930 and June 1932.
Despite Friday's rally, the Dow fell 5.3% on the week and is down 39% this year. The S&P 500 was down 8.4% for the week and is down 45.5% this year. The Nasdaq's 8.7% loss brought its loss for the year to 47.8%.
| Close for week | Wk. ago close | % chg. | YTD. chg. | |
|---|---|---|---|---|
Dow Jones industrials | 8,046.42 | 8,497.31 | -5.31% | -39.34% |
S&P 500 | 800.03 | 873.29 | -8.39% | -45.52% |
Nasdaq Composite | 1,384.35 | 1,516.85 | -8.74% | -47.81% |
Russell 2000 | 406.54 | 456.52 | -10.95% | -46.93% |
Crude oil per barrel | $49.93 | $61.04 | -18.20% | -47.98% |
10-yr. Treasury yield | 3.17% | 3.78% | -0.61% | -21.51% |
Gold per troy ounce | $793.60 | $734.20 | 8.09% | -5.30% |
Short-covering, bargain-hunting help the rally
While the Geithner news was the biggest reason for the rally, it wasn't the only one. Stocks had become deeply oversold this week. Birinyi Associates, a financial consulting firm, suggested in a report Friday morning that financial, energy, industrial and technology stocks were the most deeply oversold.In addition, simple covering by short-sellers wanting to book their profits from the most recent selling wave was a force in the market.
Whatever the reasons, the market took off in a very broad rally with lots of volume: 2.4 billion shares on the New York Stock Exchange and 3.1 billion shares on Nasdaq. Both were about a third more than average.
Twenty-eight of the 30 Dow stocks were higher on the day. So, too, were 450 S&P 500 stocks and 84 stocks in the Nasdaq-100, which tracks the largest Nasdaq stocks. The index was up 49 points, or 4.7%, to 1,086.
Energy stocks, in fact, were among the day's big winners after crude oil climbed 51 cents to $49.93 a barrel. The Select Sector SPDR-Energy (XLE, news, msgs) exchange-traded fund was up 11% to $44.42, the best performer of the 10 ETFs that track the sectors of the S&P 500.
ExxonMobil (XOM, news, msgs) was up 10.7% to $75.81, and Chevron (CVX, news, msgs) was up 9.5% to $70.49. The two added more than 105 points to the Dow.
All 10 S&P 500 sectors were higher on the day, even the weak financial sector.
Alcoa (AA, news, msgs), up 23.2% to $8.44, Walt Disney (DIS, news, msgs), up 12.8% to $21.12, and Microsoft (MSFT, news, msgs), up 12.3% to $19.68, were the top performers of the 30 Dow stocks. Alcoa jumped as raw materials stocks had a big day. Microsoft jumped after Oppenheimer & Co. raised its rating on the stock to "outperform" from "perform." Analysts said the stock had fallen too far. (Microsoft is the publisher of MSN Money.)
The big rally also reversed weakness in technology stocks. Google (GOOG, news, msgs), which had hit $247.30 in the morning, rebounded to a gain of 1.1% at $262.43. But personal-computer maker Dell (DELL, news, msgs) was down 5.2% to $9.30.
Wal-Mart taps a new CEO
Wal-Mart Stores (WMT, news, msgs) Friday unexpectedly said that Mike Duke, who currently heads the retailer's international operations, will replace Lee Scott as CEO when he retires in February.Scott will remain on Wal-Mart's board of directors and will continue to be employed with the company through January 2011, the company said.
"This management change occurs at a time of strength and momentum for Wal-Mart," Rob Walton, chairman of the Wal-Mart board of directors, said in a press release.
U.S. operations chief Eduardo Castro-Wright will become vice chairman, Wal-Mart said.
The stock was up 4.5% to $52.92.
| Fri. | Thur. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
Crude oil (NYMEX) (per barrel) | $49.93 | $49.42 | $0.51 | -26.37% | -47.98% |
Heating oil (per gallon) | $1.6996 | $1.6759 | $0.0237 | -15.29% | -35.85% |
Natural gas (per million BTU) | $6.4800 | $6.3160 | $0.1640 | -4.47% | -13.40% |
Unleaded gasoline (per gallon) | $1.0643 | $1.0070 | $0.0573 | -26.16% | -57.27% |
Another bid to save automakers?
There was lots of talk Friday about the prospects for federal assistance for the beleaguered automakers.House Speaker Nancy Pelosi rejected any talk of having the General Motors, Ford Motor or privately held Chrysler file for bankruptcy projected.
Doing nothing to bail out America’s car industry was not an option and that allowing the manufacturers to go bankrupt would be “digging the hole far too deep,” she said Friday.
A Bloomberg report said the Obama transition team was exploring a prepackaged bankruptcy plan for the automakers.
Shares of General Motors jumped 6.3% to $3.06. Ford Motor (F, news, msgs) shares were up 2.9% to $1.43. Chrysler is privately held.
The automakers took a big hit on Thursday after Congress said it won't consider a bailout for the auto industry until after Thanksgiving.
"The events on Capitol Hill is a replay of the 1979 Chrysler bailout lobbying, in which Chrysler's initial request met similar skepticism from a bailout-weary Congress," Barclays analyst Brian Johnson wrote in a note to clients Friday.
More from MSN Money
Meanwhile, GM said Friday that it will shut down five American plants for several more weeks, but that there would be no permanent layoffs as a result.
Dell earnings don't impress
Dell's 5.2% decline was a clear signal that Wall Street wasn't impressed with the computer maker third-quarter earnings report.The company said it earned $727 million in the third quarter, a 5% decline from $766 million a year ago. On a per-share basis, things were better: Dell earned 37 cents in the quarter, ahead of analysts' expectations of 31 cents per share.
Dell has been taking steps to cut costs, including reducing its head count by 8,900.
"It was certainly a surprise, and what this shows is that cost-cutting initiatives are beginning to take effect. The slowdown in PC demand affected laptop sales and thus revenue," Bill Kreher, a technology analyst at Edward Jones, told Thompson Reuters.
Video on MSN Money
Where is bailout money going?Bank of America is using $7 billion of taxpayer money to buy shares in a Chinese bank. How is that going to help fix the US financial system, asks Jim Jubak.
Gap posts higher profit
There was some surprisingly good news from retailer Gap (GPS, news, msgs) late Thursday, and shares were sharply higher Friday.Gap posted third-quarter net income of $246 million, or 35 cents per share, up slightly from the $238 million, or 30 cents per share, the company earned in the same quarter a year ago. The results topped the consensus estimate by a penny.
Sales fell 8% to $3.56 billion in the quarter, and sales at stores open at least one year fell 12%.
The company reiterated guidance for the full year, saying it will earn between $1.30 and $1.35 per share for fiscal 2008.
Gap shares were up 27.2% to $12.10.
Andrew Rosenbaum contributed to this report.
| Fri. | Thur. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
Treasurys | |||||
13-week Treasury bill | 0.010% | 0.005% | 0.005 | -97.70% | -99.68% |
5-year Treasury note yield | 1.990% | 1.937% | 0.053 | -29.46% | -42.40% |
10-year Treasury note yield | 3.167% | 3.144% | 0.023 | -20.23% | -21.51% |
30-year Treasury bond yield | 3.663% | 3.699% | -0.036 | -16.16% | -17.85% |
Currencies | |||||
U.S. Dollar Index | 88.415 | 88.295 | 0.120 | 2.40% | 15.28% |
British pound in dollars | $1.4923 | $1.4741 | 0.0183 | -7.24% | -24.98% |
Dollar in British pounds | £0.6701 | £0.6784 | -0.0083 | 7.80% | 33.30% |
Euro in dollars | $1.2590 | $1.2460 | 0.0130 | -1.25% | -13.86% |
Dollar in euros | € 0.7943 | € 0.8026 | -0.0083 | 1.26% | 16.09% |
Dollar in yen | 95.89 | 94.13 | 1.76 | -2.77% | -14.27% |
Canadian dollar in U.S. dollars | $0.787 | $0.772 | $0.0156 | -4.84% | -20.71% |
U.S. dollar in Canadian dollars | $1.271 | $1.296 | -$0.0247 | 5.11% | 26.12% |
Commodities | |||||
Gold | $791.80 | $748.70 | $43.10 | 10.25% | -5.51% |
Copper | $1.5790 | $1.5800 | $0.00 | -13.67% | -48.08% |
Silver | $9.4800 | $9.5050 | -$0.03 | -2.57% | -36.46% |
Corn | $3.3850 | $3.6375 | -$0.25 | -15.69% | -25.69% |
Crude oil (NYMEX) (per barrel) | $49.93 | $49.42 | $0.51 | -26.37% | -47.98% |
Rate this Article
High