Market Dispatches on MSN Money

Market Dispatches11/24/2008 8:40 PM ET

Dow jumps 397 on Citigroup rescue

Stocks enjoy a second straight big rally after the government steps in to save the troubled bank. President-elect Obama announces plans for a huge stimulus package. Energy stocks jump as oil shoots over $54. Most techs move higher; Apple rises nearly 13%.

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By Charley Blaine and Elizabeth Strott

Stocks soared today and enjoyed their biggest two-day gains since the 1987 stock market crash after the government agreed to support troubled banking giant Citigroup (C, news, msgs).

The market rally came as President-elect Barack Obama announced his economic team and pledged "an aggressive economic recovery program" to "jolt the economy back into shape."

At the close, the Dow Jones industrials were up 397 points, or 4.9% to 8,443. The Standard & Poor's 500 Index was up 52 points, or 6.5%, to 852, and the Nasdaq Composite Index was up 88 points, or 6.3%, to 1,472.

The Dow has gained 891 points, or 11.8%, in the last two trading sessions. The Dow's two-day point gain was only its second since Oct. 1, but it was its largest ever. Its percentage gain was the largest since the 1987 market crash. The S&P 500 is up 13.2% since Thursday, with the Nasdaq up 11.9%. Those, too, were the biggest since the 1987 market crash.

The big unknown was how much of the rally was due simply to short-covering by investors who had sold stocks short. Some were buying shares because they were booking profits. But some also may have been caught expecting the big sell-offs on Wednesday and Thursday to continue.

Some profit-taking did hit the market in the last 20 minutes of trading. As 3:40 p.m. ET, the Dow was some 553 points and suddenly lost more than 200 before stabilizing on the close.

Still, futures trading suggest modest opens for the Dow and the S&P 500 on Tuesday in a holiday-shortened week. Markets will be open as usual on Wednesday, closed on Thursday and open for a short day on Friday.

Citigroup was the biggest catalyst in the market, rising 57.8% to $5.95. The stock was the biggest percentage gainer among the 30 Dow stocks and among S&P 500 stocks. The government agreed late Sunday to shore up the ailing banking giant.

The move also helped financial stocks generally move sharply higher.

The other three stocks in the Dow rallied strongly, adding more than 100 points to the index. Bank of America (BAC, news, msgs) jumped 27% to $14.59, JPMorgan Chase (JPM, news, msgs) was up 21.4% to $27.58, and American Express (AXP, news, msgs) rose 13.3% to $21.18.

The Select Sector SPDR-Financial (XLF, news, msgs) exchange-traded fund was up 15.2% to $11.15. Despite the rally, the ETF, which tracks the financial sector of the S&P 500, is down 61.5% this year.

Meanwhile, a falling dollar helped set off a big jump in commodity prices, especially crude oil and gold.

Crude settled up was up 9.2% to $54.50 a barrel in New York. That pushed energy and mining stocks higher. Chevron (CVX, news, msgs), up 5.4% to $74.30, and ExxonMobil (XOM, news, msgs), up 3.9% to $78.80, were worth roughly 54 points of the Dow's gain.

Gold was up 3.5% to $819.50 an ounce in New York. Silver was up 9.4% to $10.395 an ounce, and copper was up 5.9% to $1.671 a pound. Freeport-McMoRan Copper & Gold (FCX, news, msgs) was up 13.4% to $21.92. U.S. Steel (X, news, msgs) added 11.8% to $27.85. And Dow component Alcoa (AA, news, msgs) rose 8.5% to $9.15.

Technology stocks saw a decent rally. The Philadelphia Semiconductor Index ($SOX.X) was up 6.1% to 191, and Apple (AAPL, news, msgs) was up 12.6% to $92.95 as analysts predicted the appeal of the computer company's latest notebooks will outweigh a weaker outlook for iPod and iPhone sales during an otherwise dismal holiday-sales season.

Hewlett-Packard (HPQ, news, msgs), which reported fiscal-fourth quarter earnings after the close, was up 3.1% to $35.70. After the close, H-P said it earned $2.11 billion, or 84 cents a share, in the quarter, up from $2.17 billion or 81 cents a share a year ago. After acquisition costs and other one-time costs, HP said it earned $10.3 a share.

HP had already offered a preliminary look at its results on Nov. 18.

The company said cost cuts and its acquisition of EDS helped results.

Twenty-nine of the 30 Dow stocks had gains today; the one loser, Wal-Mart Stores (WMT, news, msgs) was off 0.3% to $52.77. Meanwhile, 465 S&P 500 stocks were higher, along with 98 stocks in the Nasdaq-100 Index. The index was up 69 points, or 6.3%, to 1,154.

Google is one of just two Nasdaq-100 losers

Internet search company Google (GOOG, news, msgs) was one of the two Nasdaq-100 stocks to show a decline today. The stock was down 1.9% to $257.44, its lowest close since May 24, 2005. Google has fallen 65% from its peak on Nov. 6, 2007.

Bernstein Research cut its price target for Google by 28.6% to $400. There is concern that search advertising is declining. Google is even cutting back on its legendary holiday parties this year, EWeek.com said.

The other decline among Nasdaq-100 stocks was Logitech International (LOGI, news, msgs), best known for its computer mice, trackballs and keyboards, down 0.7% to $12.45.

Energy prices -- New York close
 Mon.Fri.Chg.Month chg.YTD chg.
Crude oil (NYMEX) (per barrel)$54.50$49.93$4.57-19.63%-43.22%
Heating oil (per gallon)$1.7844$1.6996$0.0848-11.06%-32.65%
Natural gas (per million BTU)$6.8880$6.4800$0.40801.55%-7.95%
Unleaded gasoline (per gallon)$1.1425$1.0643$0.0782-20.73%-54.13%

Wall Street cheers Citigroup rescue

In a deal announced late Sunday, the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. will guarantee about $306 billion in toxic assets to help clean up Citigroup's balance sheet. Citigroup will also receive a $20 billion cash injection from the Treasury, on top of the $25 billion the bank has already received.

"Obviously the news out of Citi is welcoming," Peter Cardillo, analyst for Avalon Partners, told CNNMoney. "Maybe this week we'll see a little bit of daylight. Maybe the market will divorce itself from the overly pessimistic sentiment."

Terms of the guarantees mean Citigroup is on the hook for the first $29 billion of losses from the $306 billion pool of assets. Then the government covers 90% of the losses, with Citigroup covering the rest. The guarantees will be for 10 years for assets related to residential mortgages, five years for other assets.

The government will get $27 billion of preferred Citigroup shares that pay an 8% dividend.

Citigroup will also cut its dividend to a penny per share from 16 cents per share.

Citigroup had lost 60% of its value last week alone, as speculation mounted that the bank would be forced to sell some of its operations -- or sell the entire company.

Chief Executive Officer Vikram Pandit insisted Citigroup would remain intact.

Stock Chart (Year)

Citigroup
Graphical chart for C
The government rescue "really was a must-do thing," Nader Naeimi, strategist at AMP Capital Investors, told Bloomberg News. "If they'd let Citigroup go, that would've been disastrous."

Citigroup has posted a total of about $21 billion in losses over the past four quarters.

Housing market still struggling

The National Association of Realtors said this morning that October existing-home sales fell 3.1% to a seasonally adjusted annual rate of 4.98 million.

On a year-over-year basis, sales were down 1.6%.

The inventory of unsold homes on the market fell 0.9% to 4.23 million, a 10.2-month supply. The median sales prices fell 11.3% in the past year to $183,300, the lowest sales price since March 2004. A year ago, the median sales price was $206,700.

"Many potential home buyers appear to have withdrawn from the market due to the stock market collapse and deteriorating economic conditions," Lawrence Yun, NAR chief economist said in a statement.

Later this week, a report on new-home sales is expected to show a 4.8% drop in October to 411,000.

On Wednesday, a report on October consumer spending is likely to show more trouble for the retail industry. Economists believe spending fell by 1% last month; if so, it would be the worst monthly drop since September 2001. Consumer spending makes up about 70% of economic activity.

Obama's economic plan takes shape

Over the weekend, Obama outlined an economic stimulus package reportedly worth about $500 billion, an amount nearly five times the size of the package initially considered by Congress.

Obama also called for 2.5 million new jobs by 2011.

At a news conference today, the president-elect was mindful of Citigroup's problems, saying he had spoken with President George W. Bush and Federal Reserve Chairman Ben Bernanke about the crisis.

Obama's team is planning to use a combination of federal spending and tax cuts to kick-start the economy. The president-elect's aides were already at work with the Bush administration on the transition.

The core of Obama's economic team are Timothy Geithner, now president of the Federal Reserve Bank of New York; former Treasury Secretary Larry Summers, chairman of the National Economic Council; University of California economist Christina Romer, who heads the Council of Economic Advisers; and Melody Barnes, who will be chairman of the president's Domestic Policy Council.

2 drug mergers today

Merger Monday resurfaced today in the pharmaceutical sector.

King Pharmaceuticals (KG, news, msgs) will buy Alpharma (ALO, news, msgs) for $37 a share in cash in a deal worth $1.6 billion after Alpharma rejected a previous offer of $1.4 billion.

Shares of Alpharma jumped 8% to $36.19; King Pharmaceuticals shares were up 7.9% to $9.30.

Meanwhile, pharmaceutical giant Johnson & Johnson (JNJ, news, msgs) announced a $438 million deal to buy Omrix Bioparmaceuticals (OMRI, news, msgs) this morning. J&J will pay $25 per share for Omrix, an 18% premium over the biotech's closing price on Friday.

Omrix shares rose 17.2% to $24.79. Johnson & Johnson was up 1.3% to $59.11.

Time for a rally?

Robert Pavlik, market strategist at Oaktree Asset Management, told MarketWatch.com that he expects to see some buyers coming into the stock market. Pavlik said the market "has declined so much, that some people might be willing to step in just because stocks seem cheap."

Coming into today, the Dow was down 43.2% from the record close of 14,164.53 set on Oct. 9, 2007, and down 39% so far this year.

The S&P 500 is down 45.5% for the year, and the Nasdaq down 47.8%.

European markets rallied on the Citigroup news today. London's FTSE 100 Index gained 5.5%, Germany's Dax 30 Index was up 4.4%, and the broader DJ Stoxx 600 Index had added 4.1%.

Asian markets were mixed in the overnight session. The Hong Kong Hang Seng Index was down 1.6% and the DJ Asia-Pacific Index was down 0.6%. Japan's markets were closed for a holiday.

Clock is ticking for automakers

General Motors (GM, news, msgs), Ford Motor (F, news, msgs) and Chrysler have to put their heads together to figure out how their industry can be saved. That's essentially what the Democrats told executives of the Big Three last week when they were sent back to Detroit without $25 billion in emergency help they sought in Washington.

Democratic leaders asked the auto executives to submit bailout plans to Congress on Dec. 2. Lawmakers may hold hearings and a vote the next week.

Stock Charts (Year)

General Motors
Graphical chart for GM
Ford Motor
Graphical chart for F
The automakers must provide a plan showing how any government loans will be used and how long the companies will need the money. The companies must agree to give up the payment of dividends and "excessive" executive compensation.

Shares of GM rose 17.3% to $3.59; Ford shares were up 9.1% to $1.56. Chrysler is privately held.

House Majority Leader Steny Hoyer, D-Md., told "Fox News Sunday" that he is "hopeful" that the automakers' plans will justify government help.

"What we need is to show how they're going to be accountable and secondly how they're going to be viable in the long term," he said. "Those are the two key questions they have to answer."

But House Republican leader John Boehner, R-Ohio, was skeptical.

"At the end of the day, it's not about convincing me. It's about convincing the American (taxpayers) that they're making an investment in a viable corporation," Boehner said on the Fox program.

Meanwhile, members of GM's board of directors may be changing their tune on the possibility of bankruptcy, The Wall Street Journal reported Sunday.

The board is willing to consider "all options" for the company. Last week, GM Chief Executive Officer Rick Wagoner told Congress that bankruptcy would not be the best option for the automaker.

Andrew Rosenbaum contributed to this report.

Short hits from the markets -- New York close
 Mon.Fri.Chg.Month chg.YTD chg.
Treasurys
13-week Treasury bill0.010%0.010%0.000-97.70%-99.68%
5-year Treasury note yield2.205%1.990%0.215-21.84%-36.18%
10-year Treasury note yield3.340%3.167%0.173-15.87%-17.22%
30-year Treasury bond yield3.755%3.663%0.092-14.05%-15.79%
Currencies
U.S. Dollar Index86.28088.415-2.135-0.08%12.50%
British pound in dollars$1.5094$1.49630.0131-6.17%-24.12%
Dollar in British pounds £0.6625£0.6683-0.00586.58%31.79%
Euro in dollars$1.2825$1.26120.02140.60%-12.25%
Dollar in euros€ 0.7797€ 0.7929-0.0132-0.60%13.96%
Dollar in yen 96.2195.960.25-2.44%-13.98%
Canadian dollar in U.S. dollars$0.806$0.790$0.0167-2.54%-18.79%
U.S. dollar in Canadian dollars$1.240$1.266-$0.02622.56%23.06%
Commodities
Gold$819.50$791.80$27.7014.10%-2.21%
Copper$1.6715$1.5790$0.09-8.61%-45.03%
Silver$10.3780$9.5050$0.876.66%-30.44%
Corn$3.5450$3.3850$0.16-11.71%-22.17%
Crude oil (NYMEX) (per barrel)$54.50$49.93$4.57-19.63%-43.22%

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