Stocks end week with big bounce
A week that began with the near collapse of a Wall Street firm and extraordinary steps by the Federal Reserve to prop up the financial system ended with the stock market posting a huge weekly gain on hope that the central bank’s actions would work.
The Dow Jones industrial average bounced back Thursday from a 293-point slide the day before, climbing 261.66 points, or 2.2%, to 12,361.32. With the market closed today for Good Friday, the index ended up 3.4% for the week, its best showing in more than a month.
The Standard & Poor’s 500 index climbed 31.09 points, or 2.4%, to 1,329.51. It was up 3.2% for the week.
Meanwhile, commodity prices tumbled for a second day, and the dollar strengthened. Those moves could ease inflationary pressures and give the central bank room to keep cutting interest rates to stave off a recession.
The day’s bright spot was the financial sector as the S&P; 500 financial index shot up 6.9%. Giving the sector a boost was an announcement by the Fed that it would accept a wider array of assets as collateral from investment banks seeking loans, which the market interpreted as another sign that the central bank is committed to stabilizing Wall Street.
“The Fed is determined to avoid a financial disaster,” said Robert Bissell, president of Wells Capital Management in Los Angeles, and investors believe its actions “are starting to take hold.”
The central bank’s steps -- including the direct extension of credit to troubled investment banks as well as cutting rates -- seemed to be doing the trick. No investment banks had credit problems this week on the scale of those at troubled Bear Stearns, which Sunday agreed to sell itself at a fire-sale price to JPMorgan Chase.
In addition, mortgage rates eased this week, providing hope for a lift to the housing market. The average rate for 30-year fixed mortgages fell to 5.87% from 6.13% last week, Freddie Mac said.
In the wake of the Fed’s actions, now is a good time to buy bank stocks, Richard X. Bove, an analyst at Punk Ziegel & Co., wrote in a research report issued Thursday. “This is a once-in-a-generation opportunity,” he wrote. “The last time an opportunity of this nature existed to buy bank stocks this cheap was in 1990. The next time will be in 20 years.”
In a sign of the market’s strength, bad news from commercial finance company CIT Group and Swiss banking giant Credit Suisse Group, which warned of an unexpected first-quarter loss, failed to inhibit the rally.
CIT’s shares fell $2.01, or 17%, to $9.63, after the company said it was tapping an emergency credit line because it couldn’t obtain short-term financing in the capital markets.
But among other financial stocks, Lehman Bros. Holdings gained $6.42, or 15%, to $48.65. Morgan Stanley added $6.22, or 14%, to $49.67. Fannie Mae gained $3.59, or 12%, to $34.30. Merrill Lynch surged $5.40, or 13%, to $46.85 despite an analyst’s prediction that the brokerage might have to take $8 billion in first-quarter write-downs.
The market, however, still hasn’t been able to put together several up days in a row. This week, the Dow surged 420 points Tuesday and fell 293 points Wednesday before rebounding Thursday.
“Tremendous volatility has one source and only one source, and that’s uncertainty,” said John Bollinger, head of Bollinger Capital Management in Manhattan Beach. “People are uncertain about everything. They’re uncertain about real estate, about stocks, about bonds. And now they’re even uncertain about commodities.”
Commodity prices tumbled for a second day. The Reuters/Jefferies CRB index of 19 commodities sank 1.7%. For the week, the index plunged 8.3%, its steepest drop in more than half a century. The gauge is down 9.2% from its record close set last week.
Crude oil for May delivery eased 70 cents Thursday to $101.84 a barrel. Only days after topping $1,000 an ounce, gold tumbled $25.10 to $919.60. Wheat prices sank 8.1% and silver lost 8.6%.
Among the day’s other market highlights:
* General Electric jumped $1.90, or 5.3%, to $37.49 after Merrill analysts said GE’s earnings would weather a U.S. recession.
* The Nasdaq composite index gained 48.15 points, or 2.2%, to 2,258.11, and was up 2.1% for the week.
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