Stocks end volatile session lower Wall Street rallies, then retreats as investors digest new details on the bank plan from Treasury. By Alexandra Twin, CNNMoney.com senior writer Last Updated: February 25, 2009: 6:01 PM ET
NEW YORK (CNNMoney.com) -- Wall Street abandoned a late-session rally attempt Wednesday, ending lower, as investors took a mixed response to new details on Treasury's plan to help stabilize the banking system.
On Thursday, investors will focus on Obama's fiscal 2010 budget plan, the weekly jobless claims and reports on new home sales and durable goods orders.
The Dow Jones industrial average (INDU) lost 80 points, or 1.1%. The S&P 500 (SPX) index fell 8 points, or 1.1%. The Nasdaq composite (COMP) lost 16 points, or 1.1%.
Stocks tumbled in the morning after a report showed existing home sales plunged to an 11-year low in January. But equities managed to cut losses and even turn higher in the afternoon after the bank plan announcement, with a number of financial stocks rallying.
"I think people are just glad to know what they are planning," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.
Yet after a brief rally, stocks erased the gains and turned lower again, as investors continued to worry about the depth and duration of the recession.
"There's a lot of nervousness," said Terry L. Morris, senior equity manager at National Penn Investors Trust. "It's a tug-of-war between the news that's out there and the fact that the market has already gotten pounded."
Confusion about the bank bailout plan has dragged on stocks lately. And recent worries have surrounded the threat of nationalization, which would wipe out shareholder value.
On Tuesday, Federal Reserve Chairman Ben Bernanke downplayed bank takeover talk, helping the stock market bounce off 12-year lows. The Treasury announcement Wednesday added to bets that the government doesn't plan to nationalize, Rovelli said.
"They're probably going to handle things like they are with Citigroup, where they take a stake in the bank, but don't take it over," he said.
Banks to face tests: Treasury plans to test the 19 banks with more than $100 billion in assets to see if they have enough capital to hold up if unemployment rises to 10% and the housing market contracts another 20%. The testing will be over by the end of April. (Full story)
The collapse of the housing market has left banks riddled with bad debt that they can't unload, and that makes them wary of lending to businesses and individuals. Although the credit markets have shown a slight improvement lately, the lending market is still sluggish at best, exacerbating the impact of the recession.
Treasury's bailout plan is ideally meant to keep banks afloat, but also get them to lend again.
The plan may achieve that, but it doesn't resolve the problem of how to value the bad assets at a price that is both good for the holders and good for the buyers, said Gregory Miller, chief economist at SunTrust Banks.
"They're trying to repair bank balance sheets when the assets that define the balance sheets keep declining," he said. "This plan may come a step closer to doing that, but it's taking an indirect route, instead of attacking more directly."
Shares of bank stocks were volatile after the Treasury news. Citigroup (C, Fortune 500) and Goldman Sachs (GS, Fortune 500) ended lower. Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500) ended higher.
Washington: Speaking Tuesday night before both chambers of Congress, President Obama told the nation: "We will rebuild, we will recover and the United States of America will emerge stronger than before."
The president outlined plans for creating jobs, stabilizing the credit markets, reforming health care and improving schools, among other issues. He presents his fiscal 2010 budget plan to Congress Thursday.
Separately, President Obama told Congress Wednesday that stronger financial sector regulation is needed.
Ben Bernanke told the House Financial Services Committee Wednesday that fixing the mortgage market is necessary for fixing the financial market, even if it means bailout out irresponsible buyers.
Company news: Ford Motor (F, Fortune 500)'s CEO and chairman agreed to cut their pay by 30% for the next two years and to suspend bonuses for salaried workers. Ford will also offer another round of buyouts and early retirement packages to all of its hourly workers. The changes were announced as union members are nearing a vote on contract concessions.
General Motors (GM, Fortune 500) rallied nearly 15%. Currently, an Obama administration task force is reviewing turnaround plans from GM and Chrysler, which have asked for a combined $22 billion more in bailout money on top of the $17.4 billion they have already received. GM issues fourth-quarter results before the start of trading Thursday.
In deal news, Canadian fertilizer Agrium made a hostile bid for U.S. rival CF Industries (CF) worth $3.6 billion in cash and stock - a 30% premium over CF's closing price Tuesday. Any deal is conditional on CF giving up its hostile offer for Terra Industries (TRA), which the company has already rejected.
First Solar (FSLR) plunged 22% in unusually active Nasdaq trade after the solar panel maker warned late Tuesday that first quarter and full-year 2009 revenue will fall from a year ago amid a bleak outlook for the industry and economy.
Market breadth was negative. On the New York Stock Exchange, decliners beat advancers three to two on volume of 1.82 billion shares. On the Nasdaq, losers beat winners by more than two to one on volume of 2.45 billion shares.
Bonds: Treasury prices tumbled, raising the yield on the benchmark 10-year note to 2.92% from 2.79% Tuesday. Treasury prices and yields move in opposite directions.
Other markets: In global trading, Asian markets rose and European markets were mixed.
In currency trading, the dollar gained versus the euro and the yen.
U.S. light crude oil for April delivery rose $2.54 to settle at $42.50 a barrel on the New York Mercantile Exchange. The price of oil was volatile after the government said the supply of crude increased less than expected last week.
COMEX gold for April delivery fell $3.30 to settle at $966.20 an ounce.
Yahoo! Finance
4:25 pm : A rally in financial stocks helped the broader market overcome a fit of early weakness, but the advance proved unsustainable as stocks finished the session more than 1% lower.
Stocks spent the majority of the session trading in the red as traders opted to take profits from Tuesday's 4% advance. The selling effort came amid a lack of positive headlines and continued uncertainty in the financial system, which failed to improve after President Obama gave his first speech before a joint meeting of Congress.
The need for additional capital amid such uncertainty led both Lincoln National (LNC 11.21, -1.83) and Allstate (ALL 17.57, -1.07) to cut their quarterly dividends. Meanwhile, an article in The Wall Street Journal seemed to suggest Wells Fargo (WFC 13.40, +0.35) should cut its dividend to help improve the bank's capital ratios.
The Fed and Treasury released key details of its bank stress-test plan. Officials will assess potential losses at banks and estimated resources to absorb those losses.
Capital provided under the plan will come in the form of preferred stock that is convertible into common equity at a 10% discount to the price prevailing prior to Feb. 9. Securities under the plan will carry a 9% dividend yield and will be convertible at the issuer's option.
The plan essentially backstops financial institutions, though the banks receiving capital will be required to submit monthly reports on their lending and will be subject to restrictions on paying quarterly common stock dividends, repurchasing shares, and pursuing cash acquisitions.
Financial stocks gave ground in the wake of the announcement, but eventually rallied to a 3.8% gain. Financials finished the session with a 0.5% loss as sellers pushed back, but that was still better than the 6.5% loss that financials traded with at their session lows.
Nine of the 10 sectors finished lower. Telecom (+1.0%) was the only sector in the S&P 500 to finish with a gain.
There was only a trickle of earnings announcements ahead of the opening bell, none of which received much attention from the broader market. Still, trading volume was above-average as nearly 1.8 billion shares traded hands on the NYSE.
The only item on the economic calendar was a bleak January existing homes sales report. Sales fell more than expected to their lowest level since 1997. Many of the sales were distressed, contributing to a near 15% year-over-year drop in the median home price. Inventory supply increased slightly to 9.6 months. DJ30 -80.05 NASDAQ -16.40 NQ100 -0.9% R2K -2.7% SP400 -1.4% SP500 -8.24 NASDAQ Adv/Vol/Dec 799/2.15 bln/1863 NYSE Adv/Vol/Dec 1208/1.80 bln/1878
3:30 pm : April crude oil futures closed at $42.40 per barrel, up 6.1% for the session. The futures contracts were up as much as 7.1% for the session as the DOE this morning reported a smaller-than-expected build in crude oil inventories.
Natural gas futures tumbled throughout the session after opening at session highs. March natural gas, which expired at the close of pit trading today, finished at $4.01 per contract, down 5.4%. The April contract finished at $4.04 per contract, down 3.6%.
April gold contracts continued their pullback after hitting a 52 week high last Friday. April gold finished down 0.3% to $966.20 per ounce after trading down as much as 1.7%.
March silver futures contracts traded as high as $14.12 per ounce in the morning only to give up gains in the afternoon. March silver contracts closed at $13.88 per ounce, down 0.9% for the session.DJ30 +42.29 NASDAQ +8.40 SP500 +5.87 NASDAQ Adv/Vol/Dec 1113/1.9 bln/1524 NYSE Adv/Vol/Dec 1634/1.3 bln/1435
3:00 pm : Stocks are back on the mend as the major indices approach earlier session highs.
Financials have made their way into positive ground as they trade with a 0.5% gain. They traded with losses exceeding 6% at their session low.
Diversified financial services companies (+6.1%) and regional banks (+6.1%) are leading the financial sector's advance. However, multiline insurance companies (-4.7%) remain under pressure. Lincoln National (LNC 10.85, -2.19) reduced its quarterly dividend to just $0.01 per share from $0.21 per share. Allstate (ALL 17.49, -1.15) also cut its quarterly dividend, lowering it to $0.20 per share from $0.41 per share. DJ30 -44.21 NASDAQ -13.70 SP500 -4.62 NASDAQ Adv/Vol/Dec 772/1.68 bln/1838 NYSE Adv/Vol/Dec 1182/1.10 bln/1878
2:30 pm : Stocks have pulled back from earlier levels after Treasury released the terms of its Capital Assistance Program. Capital issued in the program will be in the form of a preferred security that is convertible into common equity at a 10% discount to the price prevailing prior to Feb. 9. CAP securities will carry a 9% dividend yield and are convertible at the issuer's option.
Recipients of the capital will be subject to restrictions in paying quarterly common stock dividends, repurchasing shares, and pursuing cash acquisitions.
Financial stocks are currently trading with a 3% loss.DJ30 -76.39 NASDAQ -15.32 SP500 -8.41 NASDAQ Adv/Vol/Dec 706/1.49 bln/1884 NYSE Adv/Vol/Dec 1009/987 mln/2038
2:00 pm : Stocks are on the upswing as they climb to their best levels of the afternoon. The move has taken the energy sector (+1.2%), telecom (+0.9%), and technology (+0.3%) stocks into positive territory.
In addition to the broad-based move, energy's advance is being helped by a 6.1% increase in crude oil prices. Crude oil futures contracts are currently pricing oil at $42.30 per barrel.DJ30 -29.63 NASDAQ -10.57 SP500 -3.05 NASDAQ Adv/Vol/Dec 738/1.30 bln/1827 NYSE Adv/Vol/Dec 1129/855 mln/1892
1:30 pm : Weakness remains widespread as declining issues in the S&P 500 outnumber advancers by more than 4-to-1.
Hormel Foods (HRL 32.90, +0.95) is one of the session's better performing stocks. Its shares were given a vote of confidence when reports announced the stock will added to the S&P 500, replacing American Capital (ACAS 1.21, -0.27).
Hormel sports a market cap in excess of $4 billion, based on its current share price. The company brought in roughly $6.8 billion of revenue during the most recent fiscal year. DJ30 -136.92 NASDAQ -27.52 SP500 -14.88 NASDAQ Adv/Vol/Dec 609/1.17 bln/1934 NYSE Adv/Vol/Dec 787/786 mln/2233
1:00 pm : Stocks are surrendering some of the prior session's gains. The weakness marks the continuation of a familiar pattern in which stocks have struggled to sustain their advances amid ongoing uncertainty in the financial system.
The stock market rallied 4.0% Tuesday with the help of some short-covering, but there haven't been any developments since to convince participants to build on those gains. Instead, traders are taking profits.
President Obama addressed a joint session of Congress last evening. The speech was optimistic, but that optimism failed to spur confidence in stocks as nothing has improved the fundamental picture for the financial sector.
Financial stocks are currently down 4.3% after rallying nearly 12% in the prior session.
Federal regulators begin stress testing banks today. The tests will help determine whether banks have sufficient capital to withstand shocks to the economy. The tests will help determine how much capital banks need, not whether they should be taken into government hands.
Accordingly, Fed Chairman Bernanke stated during his testimony before the House Financial Services Committee that there aren't any plans for nationalizing Citigroup (C 2.53, -0.07).
Citigroup and Bank of America (BAC 4.71, -0.02) are among the most actively traded stocks by share volume this session. Reports indicate Citigroup may divest both its Japanese investment bank and Japanese brokerage unit as part of an effort to raise capital.
Meanwhile, Bank of America's acquisition of Merrill Lynch continues to result in deeper losses than expected. Merrill disclosed in a regulatory filing that fourth quarter losses were $530 million more than previously reported.
There were no earnings announcements of consequence ahead of the opening bell.
The only economic report of the day was a reminder of how weak the housing industry remains. January existing homes sales dropped more than expected, marking a decline of 5.3% from the last month. That pushed sales to their lowest level in more than one decade. DJ30 -147.67 NASDAQ -29.50 SP500 -16.01 NASDAQ Adv/Vol/Dec 599/1.07 bln/1927 NYSE Adv/Vol/Dec 728/703 mln/2285
12:30 pm : More than 80% of the companies listed in the S&P 500 are trading with a loss. Meanwhile, only four of the 30 Dow components are trading higher.
The Dow's gainers include General Motors (GM 2.48, +0.26), Intel (INTC 12.87, +0.14), Kraft (KFT 23.80, +0.08), and AT&T (T 23.26, +0.01).
Gains in shares of GM follow President Obama's speech last evening, during which it seemed to be suggested that further help would be available for automakers.
Meanwhile, shares of INTC and T are both benefitting from positive views from analysts.DJ30 -150.70 NASDAQ -31.69 SP500 -15.85 NASDAQ Adv/Vol/Dec 579/967 mln/1932 NYSE Adv/Vol/Dec 722/640 mln/2269
12:00 pm : The absence of positive catalysts has stocks chopping along through negative territory.
A mixed batch of earnings announcements has been generally overlooked.
Ormat Technologies (ORA 28.02, -1.40) issued better-than-expected quarterly results. J.M. Smucker (SJM 38.80, -2.34) also issued upbeat results. Papa Johns (PZZA 21.93, +2.05) provided better-than-expected results and raised its outlook. Wynn Resorts (WYNN 22.59, -3.21) and Saks (SKS 2.08, +0.23) both missed analysts' earnings estimates. DJ30 -143.29 NASDAQ -28.12 SP500 -14.20 NASDAQ Adv/Vol/Dec 613/917 mln/1879 NYSE Adv/Vol/Dec 739/607 mln/2242
11:30 am : The stock market is paring its losses after falling as much as 3.7%. Losses remain widespread, however.
Trading volume has increased in Bank of America (BAC 4.63, -0.10) and Citigroup (C 2.51, -0.09), making them two of the most active stocks by share volume this session. More than 7 million shares of BAC have traded hands so far this session, while more than 3 million shares of C have traded hands.DJ30 -127.68 NASDAQ -22.89 SP500 -12.33 NASDAQ Adv/Vol/Dec 616/726 mln/1801 NYSE Adv/Vol/Dec 677/469 mln/2264
11:00 am : Selling pressure is stiff as each of the major indices are trading with losses in excess of 2%.
Losses are steepest among financial stocks. The financial sector is currently down 5.4%. Particular weakness is being exhibited by banks and financial services companies JPMorgan Chase (JPM 20.47, -0.55), Bank of America (BAC 4.43, -0.30), and Wells Fargo (WFC 12.44, -0.61).
Wells Fargo was the focus of an article in this morning's edition of The Wall Street Journal, which highlights the company's dividend and the capital the comany could conserve by cutting the dividend. JPMorgan opted to cut its dividend following Monday's close; the decision was made to help protect its balance sheet.DJ30 -172.76 NASDAQ -31.39 SP500 -17.82 NASDAQ Adv/Vol/Dec 539/602 mln/1839 NYSE Adv/Vol/Dec 517/379 mln/2400
10:30 am : Stocks drop to session lows as a dismal existing home sales report hits the wires at 10:00 AM ET.
January existing homes sales dropped to a seasonally adjusted annual rate of 4.49 million from 4.74 million, which was well short of the 4.79 million consensus estimate. This marks a decline of 5.3% compared to last month and 8.6% compared to the previous year Consumers remain hesitant to buy homes in the face of declining wealth and plummeting home prices. At the same time, credit standards are tighter, so fewer people that want to purchase a home are able to obtain financing.
Many of the sales were distressed, which is foreclosed properties or a short-sale. Nationwide, the National Association of Realtors said 45% of January sales were distressed. This contributed to a 14.8% year-over-year drop in the median home price. The month's inventory supply rose only slightly to 9.6 months from 9.4 months, but that is only because more people gave up on trying to sell their homes.
Overall housing inventory levels are at historic highs, according to Q4 census bureau data, so it's likely that the housing market will remain weak for an extended period of time.
Real estate services stocks are down 10.6%.
Just reported, oil inventories rose by 717,000 barrels, which was smaller than the expected build of 1.3 million. Oil prices rose following the release, currently up 2.4% to $40.88 per barrel.DJ30 -138.75 NASDAQ -21.80 SP500 -13.52 NASDAQ Adv/Vol/Dec 587/453 mln/1685 NYSE Adv/Vol/Dec 566/299 mln/2309
10:00 am : Weakness remains largely broad-based in the early going. Stocks have slipped lower, and several key commodities are even under pressure.
However, oil prices are climbing ahead of the weekly crude oil inventory report, which is due at 10:30 AM ET. Crude futures contracts are currently pricing oil 1.8% higher at $40.70 per barrel.
Natural gas is trading lower, though. Contracts for delivery of natural gas are currently trading for $4.17 each, or 1.6% lower.
The price of gold is down for the third straight session. The pullback comes after gold contracts last week priced the commodity above $1,000 per ounce. That was the highest price gold had seen in roughly 11 months.
Silver is also succumbing to selling pressure. Silver is being priced at $13.90 per ounce, down roughly 0.7%.
09:45 am : The major indices are trading with losses during the first few minutes of action. The decline is broad-based as only one of the 10 sectors in the S&P 500 is trading in the red.
Telecom is on its own in the green. The sector is up 0.1%. Energy (-0.4%) and materials (-0.6%) stocks were also up recently, but intensifying selling pressure has taken them lower.
Within the materials sector, Agrium (AGU 38.63, -1.67) has proposed to acquire all the capital stock of chemical manufacturer CF Industries (CF 64.21, +8.63) for $72 per share by using a mix of cash and Agrium stock. The offered price comes as a near 30% premium to CF's closing price in the prior session. DJ30 -74.08 NASDAQ -15.23 SP500 -8.53 NASDAQ Adv/Vol/Dec 591/132 mln/1431 NYSE Adv/Vol/Dec 684/114 mln/1997
09:15 am : S&P futures vs fair value: -5.40. Nasdaq futures vs fair value: -8.80. The stock market fell more than 3.5% Monday, but then rallied 4.0% Tuesday. Heading into Wednesday trading the stock market is up just 0.4% since last week's close. According to stock futures, which currently lag fair value, that modest week-to-date gain will be tested. There haven't been any earnings announcements of consequence this morning, and the only piece of economic data, January existing home sales, isn't due until 10:00 AM ET. At that same time, Fed Chairman Bernanke will begin his testimony before the House Financial Services Committee. His testimony yesterday to the Senate Banking Committee didn't contain any market-moving surprises, but the question-and-answer segment may offer additional insights into Fed thinking.
09:00 am : S&P futures vs fair value: -7.30. Nasdaq futures vs fair value: -12.30. Stock futures continue to lag fair value. Corporate news flow remains remains slow. Crude oil futures contracts are bidding the price of oil roughly 1% higher to $40.35 per barrel. Gold futures contracts are bidding the price of the yellow metal approximately 1% lower to $958.70 per ounce. Meanwhile, the U.S. dollar is up roughly 0.3% when compared with a basket of major foreign currencies. The only economic report on today's docket is the existing home sales report, which will be released at 10:00 AM ET. Economists expect to see a 1.1% increase from the prior month, which translates to an annualized rate of 4.79 million units. Fed Chairman Bernanke will testify before the House Financial Services Committee at 10:00 AM ET. His testimony to the Senate Banking Committee yesterday didn't contain any market-moving surprises.
08:35 am : S&P futures vs fair value: -7.20. Nasdaq futures vs fair value: -10.30. The stock market is still on track to begin the session lower. Just a trickle of earnings announcements are hitting news wires this morning. Discount retailer Dollar Tree (DLTR) reported fourth quarter earnings of $1.15 per share, which exceeds the $1.13 per share that was widely expected. Dollar Tree also issued in-line guidance for the first quarter and for fiscal 2010. Overseas markets are trading with solid gains. Germany's DAX is trading 0.6% higher and France's CAC is up 0.9%. Meanwhile, Britain's FTSE is up 1.1%. Financial services stocks and bank stocks are providing leadership in the three major European bourses. According to Dow Jones, the European Union has unveiled guidelines for a common action to handle toxic assets at banks. Meanwhile the United Kingdom is confident it will seal a deal to insure toxic assets on bank balance sheets by the end of the week. Asian markets concluded Wednesday's trading with impressive gains. Japan's Nikkei advanced 2.7%, while Hong Kong's Hang Seng climbed 1.6%. Honda Motor (HMC) and Tokyo Electronic were Japan's primary leaders. China Construction Bank and HSBC were among Hong Kong's best performers.
08:00 am : S&P futures vs fair value: -4.60. Nasdaq futures vs fair value: -9.80. The stock market is currently heading toward a lower start, following the prior session's 4% advance. There haven't been any catalysts this morning to extend the recent gain. Last evening President Obama gave his first speech before a joint Congress, during which he called for new efforts regarding energy, health care, and education. Obama also assured the public that the country will emerge stronger than before, despite challenging economic conditions. According to Dow Jones, the European Union has unveiled guidelines for a common action to handle toxic assets at banks. Meanwhile the United Kingdom is confident it will seal a deal to insure toxic assets on bank balance sheets by the end of the week. In a separate report, Merrill Lynch disclosed Tuesday an additional $530 million in fourth quarter losses. The additional losses came after uncovering an accounting problem related to the valuation of intercompany transactions. Merrill Lynch indicated in a regulatory filing that its fourth quarter loss was $15.84 billion, or $9.95 a share, compared with the preliminary $15.31 billion loss reported in January. Earnings news is light heading into this session. J.M. Smucker (SJM) earned an adjusted $0.88 per share during its latest quarter. The results were a penny better than the consensus earnings estimate of $0.87 per share. The company's 2009 adjusted earnings forecast of $3.15 to $3.30 per share, falls short of the consensus forecast of $3.48 per share. Wynn (WYNN) posted adjusted earnings per share of $0.07 per share for the fourth fiscal quarter. That was far short of the $0.44 per share consensus estimate.
06:20 am : S&P futures vs fair value: -1.50. Nasdaq futures vs fair value: -5.50.
06:20 am : Nikkei...7461.22...+192.70...+2.70%. Hang Seng...13005.08...+206.60...+1.60%.
06:20 am : FTSE...3865.54...+49.10...+1.20%. DAX...3965.25...+69.40...+1.80%.
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