Markets Close Higher on News of Stress Tests
Wednesday, May 6, 2009; 4:28 PM
Shares of the nation's big banks pushed the Dow Jones industrial average higher this afternoon as investors reacted to leaked news about the government's stress tests for large financial institutions, but the Nasdaq lagged as technology stocks took a beating.
The blue-chip Dow closed up 1.2 percent, or 102 points, while the broader Standard & Poor's 500-stock index also rose, up 1.7 percent, or 16 points. The tech-heavy Nasdaq was up a more modest 0.3 percent, or 5 points, after spending part of the day in negative territory.
The jump in the Dow and S&P followed news reports, which cited unnamed sources, that some of the nation's largest banks will not need infusions of capital. The Washington Post reported this afternoon that the government will not require Bank of America Corp. to raise any new capital as a result of its stress test, although the company will be required to increase its holdings of common equity, the most dependable kind of capital, by about $35 billion. Bank of America, the biggest gainer of the Dow stocks, closed up 17 percent.
"Results are getting released and the markets are getting behind them," Todd Clark, director of trading at Nollenberger Capital Partners, said. "And it looks like the feared institutions that were supposed to have raised a ton of capital -- the amounts are not as big as had been feared."
Other banks that will receive a clean bill of health include J.P. Morgan Chase and Bank of New York Mellon, The Post reported. Citigroup, however, will be required to raise several billion dollars in new capital and the company will be required to increase its holdings of common equity by tens of billions of dollars. The company already has announced plans to exchange common shares for preferred shares, including $25 billion held by the government, which would give taxpayers a roughly 36 percent stake in the company.
Financial shares and other economically sensitive stocks such as those of energy companies lead the surge in the S&P 500, with financial shares recently up more than 8 percent.
The market was buoyed early this morning by the ADP National Employment Report, a non-government report that tallies private-sector employment. The report said private-sector employment fell by 491,000 in April, a substantial improvement on the ADP's report last month that said 708,000 jobs were lost in March. The report also said employment is likely to decline for several more months, but at a slower clip than in previous months. The news comes ahead of Friday's highly anticipated Labor Department report on monthly job losses.
European markets were up today. London's FTSE was up 1.4 percent, or 60 points, while Germany's DAX was up 0.6 percent, or 28 points. Markets in Japan were closed for a holiday.
Staff writer Binyamin Appelbaum contributed to this report.