Markets Rally on Treasury Selection
Saturday, November 22, 2008
After two days of brutal selling that pushed Wall Street to its worst levels in years, stocks rallied yesterday but still finished sharply lower for the week.
Stocks were flat most of the day, though some bargain hunters emerged after the Dow Jones industrial average had lost more than 10 percent over the previous two days. But in what has become a common occurrence, trading accelerated in the last hour, surging on news that President-elect Barack Obama will nominate New York Federal Reserve Bank President Timothy F. Geithner as Treasury secretary.
The Dow climbed 6.54 percent, or 494.13 points, to close at 8046.42. The Standard & Poor's 500-stock index was up 6.32 percent, or 47.59 points, to 800.03, while the tech-heavy Nasdaq composite index was up 5.18 percent, or 68.23 points, to 1384.35.
The rally restored some of the week's losses, but it left the Dow still down 5 percent for the week. The Nasdaq and S&P lost 9 and 8 percent, respectively.
Despite the rally, investors continued to seek safety from the market turbulence. Gold, a traditional safe haven, surged 5.76 percent to $791.70 an ounce. The yield on a three-month government bond, which fell to 0.01 percent Thursday, recovered some ground, but remained historically low at 0.04 percent. That indicates that investors are willing to earn little for their investment in exchange for the security of government bonds.
Geithner's nomination injects some certainty into the markets, analysts said. Wall Street was concerned that additional financial rescue efforts would be on hold until the new administration was in place. The appointment of Geithner could speed the process, said Christopher Low, chief economist at Memphis-based FTN Financial. "It is not just that Geithner is solid and qualified," Low said. "The market has lost faith in [Treasury Secretary] Henry Paulson. The fact that there is finally someone else we can turn to in this crisis is a godsend."
While most of the market rebounded yesterday, banking stocks still struggled. The sector was weighed down by Citigroup, the giant New York bank, whose future remains uncertain following its announcement earlier this week that it would shed about 50,000 jobs. Citigroup was down 19.96 percent to $3.77 a share, the Dow's biggest loser on the day, and for the week it was down 60 percent.
Citigroup is scrambling to convince investors that it is in good financial health, even as executives met yesterday to discuss options, including the possible sale of business units.
The banking sector has been under assault as investors worry that the government's financial rescue program will not be enough to stabilize it.
Goldman Sachs said in a report yesterday that it now expects unemployment to reach 9 percent this year and corporate profits to fall 10 percent, then 25 percent in 2009, which would mark the biggest drop since 1938, the report said. "This deepens and extends the expected recession, bringing the drop in GDP close to the decline seen in 1982," Jan Hatzius, a Goldman analyst, said in a report.
In corporate news, Wal-Mart announced that its chief executive, Lee Scott, planned to retire in February. The discount store has outperformed the rest of the retail sector during a financial crisis that has included a steep downturn in consumer spending. Its shares were up 4.46 percent to $52.92.
Crude oil prices were up less than 1 percent, closing at $49.93 a barrel on the New York Mercantile Exchange. Analysts had predicted that crude oil, after peaking at $147 a barrel this summer, would fall to $50 a barrel, but have been surprised by the speed of its descent. Many analysts are now predicting prices could fall to $35 to $45 a barrel