Confidence creeps back into stocks
Stocks continued to rebound Wednesday as financial market jitters receded further.
Markets could get another lift today from the surprise news late Wednesday that Bank of America made a $2-billion investment in Countrywide Financial. The capital injection may put to rest fears that the struggling mortgage giant could fail.
The Dow Jones industrial average rose 145.27 points, or 1.1%, to 13,236.13. Broader indexes also gained.
Confidence was in greater supply even before the Countrywide news, which came after markets closed. Stocks rallied at the opening bell as investors’ appetite for risk rebounded, helped by growing calm in credit markets and renewed talk of corporate deals.
Investors who had rushed into Treasury securities in the last week amid spreading turmoil in stock and bond markets may have reconsidered Wednesday: Yields on most Treasury issues rose, indicating waning demand.
The annualized yield on three-month T-bills rose as high as 3.85%, then closed at 3.66%, up from 3.59% on Tuesday and 2.92% on securities sold Monday.
The 10-year T-note yield ended at 4.65%, up from 4.59% the day before.
Treasury yields rose as the bond market began to doubt that the Federal Reserve would be compelled to cut its key interest rate soon, some analysts said. If financial markets continue to stabilize after last week’s rout, the need for a cut in the federal funds rate, the Fed’s base short-term rate, may fade.
On Tuesday, “speculation was spreading that the Fed was going to cut rates any minute,” said David Rosenberg, North American economist at Merrill Lynch in New York. The tone changed dramatically on Wednesday, he said.
The central bank on Friday cut a less important rate, the discount rate, in an effort to shore up the banking system. The Fed acted after many lenders began to balk at extending credit amid worries of a deepening crisis in the financial sector rooted in the housing industry’s woes.
Renewed optimism about the economic outlook helped boost industrial and commodity shares, which led the market higher.
Alcoa rose $1.62 to $36.22, diesel engine manufacturer Cummins surged $4.95 to $115.82 and U.S. Steel jumped $3.85 to $92.73.
What’s more, “we’re starting to see deal announcements again and rumors of deals,” said Thomas Sowanick, who helps oversee $10 billion as chief investment officer of Clearbrook Financial in Princeton, N.J. “Because the markets had been roiled, it created opportunities to acquire companies rather cheaply.”
An affiliate firm of Dubai’s government said it was investing $5.1 billion in casino operator MGM Mirage. MGM Mirage rallied $6.62 to $80.94, and other casino issues also rose.
TD Ameritrade Holding gained 80 cents to $17.15 after the Wall Street Journal said the online brokerage was in talks to merge with E-Trade Financial, its smaller rival. E-Trade fell 32 cents to $15.25.
In the broad market, winners topped losers by more than 4 to 1 on the New York Stock Exchange, which analysts said was an encouraging sign. However, trading volume was relatively muted.
The Standard & Poor’s 500 index jumped 16.95 points, or 1.2%, to 1,464.07. The Nasdaq composite was up 31.50 points, or 1.2%, to 2,552.80.
In other trading, oil prices fell for the fourth time in five sessions. Near-term crude futures dipped 31 cents to $69.26 a barrel.
Foreign stock markets continued to recover with Wall Street. The Hong Kong market rose 2.8%, the German market gained 1% and Brazil’s main index surged 3.9%.
Among the day’s highlights:
In the industrial sector, Eaton rose $2.82 to $93.36, Deere was up $1.42 to $130.72 and AK Steel gained $2.70 to $35.33.
Mining giant Rio Tinto said it completed the financing for its $38-billion acquisition of Canadian aluminum maker Alcan. Rio Tinto rose $14.87 to $259.40.
The chairman of Nymex Holdings said the commodities exchange had been meeting with suitors, and Nymex rocketed $7.28 to $126.06.
In the housing sector, luxury builder Toll Bros. reported that its third-quarter profit tumbled, but the results were not as bad as Wall Street had anticipated. The stock rose $1.06 to $22.15.
Countrywide added 3 cents to $21.82 in regular trading, then jumped to $26.30 after hours in the wake of the announcement that Bank of America bought $2 billion of preferred stock in the company to bolster its finances.
Other financial stocks were mixed in the regular session. Downey Financial dropped 71 cents to $54.19 and JP Morgan Chase lost 20 cents to $46, but Merrill Lynch added 33 cents to $76.44 and Goldman Sachs was up $2.41 to $177.89.
