NEW YORK (MarketWatch) -- U.S. stocks on Tuesday shook off early declines, with investors heartened by Fannie Mae's calming words to investors about its financial situation and by thinking Microsoft Corp and Yahoo Inc. might continue merger discussions after all.
"The reversal in Fannie Mae was the main catalyst, it lifted financials off the floor, maybe on the belief the worst is over - obviously the whole bet that the worst is over is just a bet, but in a heavily shorted stock," said Peter Boockvar, equity strategist at Miller Tabak.
After triple-digit losses early on, the Dow Jones Industrial Average ($INDU:
Dow Jones Industrial Average ($INDU 13,028.57, +59.03, +0.5%) rose 49.42 points to 13,018.96, with 20 of its 30 components trading in the green, led by Alcoa Inc. (AA: 37.89, +1.00, +2.7%) , up 2.4%.
General Motors Corp. (GM: 22.05, -0.31, -1.4%) fronted blue-chip declines, with shares of the automaker dropping 1.6%.
The turnaround in U.S. equities came even as crude-oil futures lingered in record territory. The spot contract marked another record close of $121.84 a barrel, up $1.87, after climbing to a new record high of $122.73 earlier on the New York Mercantile Exchange. Read Futures Movers.
The S&P 500 ($SPX: 1,419.04, +11.55, +0.8%) gained 10.82 points to 1,418.31, with the financial sector heartened by Fannie Mae's conference call.
"U.S. equities reversed losses and are back in the green after Fannie Mae's conference call turned investor frowns upside down, encouraging the view that the quasi-government-backed mortgage giant was getting a handle on its balance sheet after announcing a $2.1 billion loss, dividend cut, recapitalization, etc.," said analysts at Action Economics.
The technology-laden Nasdaq Composite (COMP: 2,481.23, +17.11, +0.7%) also shed earlier losses, gaining 20.29 points to 2,484.41.
Tech stocks were bolstered as hopes were revived that Yahoo (YHOO: 25.53, +1.16, +4.8%) might attempt to revive talks with would-be suitor Microsoft (MSFT:29.84, +0.76, +2.6%) , which ended discussions during the weekend. See Tech Stocks.
After triple-digit losses early on, the Dow Jones Industrial Average ($INDU:
Dow Jones Industrial Average ($INDU 13,028.57, +59.03, +0.5%) rose 49.42 points to 13,018.96, with 20 of its 30 components trading in the green, led by Alcoa Inc. (AA: 37.89, +1.00, +2.7%) , up 2.4%.
General Motors Corp. (GM: 22.05, -0.31, -1.4%) fronted blue-chip declines, with shares of the automaker dropping 1.6%.
The turnaround in U.S. equities came even as crude-oil futures lingered in record territory. The spot contract marked another record close of $121.84 a barrel, up $1.87, after climbing to a new record high of $122.73 earlier on the New York Mercantile Exchange. Read Futures Movers.
The S&P 500 ($SPX: 1,419.04, +11.55, +0.8%) gained 10.82 points to 1,418.31, with the financial sector heartened by Fannie Mae's conference call.
"U.S. equities reversed losses and are back in the green after Fannie Mae's conference call turned investor frowns upside down, encouraging the view that the quasi-government-backed mortgage giant was getting a handle on its balance sheet after announcing a $2.1 billion loss, dividend cut, recapitalization, etc.," said analysts at Action Economics.
The technology-laden Nasdaq Composite (COMP: 2,481.23, +17.11, +0.7%) also shed earlier losses, gaining 20.29 points to 2,484.41.
Tech stocks were bolstered as hopes were revived that Yahoo (YHOO: 25.53, +1.16, +4.8%) might attempt to revive talks with would-be suitor Microsoft (MSFT:29.84, +0.76, +2.6%) , which ended discussions during the weekend. See Tech Stocks.
Shares of Yahoo gained 6.9%, while Microsoft was up 2%.
Fed factor
A warning from Federal Reserve Chairman Ben Bernanke weighed on sentiment earlier in the session, after he said late Monday that increasing home foreclosures could further harm the economy. Read The Fed.
"Bernanke stated housing price declines and mortgage delinquencies may have substantial spillover effects into other markets, hurting the overall economy," said Alex Meister, an analyst with Wachovia Corp., in a report.
Although investors have been buying riskier assets lately, noted Meister, "some economists believe more volatile times and market corrections may lie ahead."
Financial- and housing-sector results weren't warmly received.
Legg Mason Inc. (LM: 57.56, -5.20, -8.3%) shares fell 7.5% after the Baltimore firm posted its first quarterly loss as a public company. Read full story.
Builder D.R. Horton (DHI:16.67, +0.70, +4.4%) , among the nation's largest home builders, reported a $1.3 billion quarterly loss on housing weakness and turmoil in mortgage markets. See full story.
Troubled Swiss banking group UBS (UBS: 33.88, -0.43, -1.2%) said it will cut 5,500 jobs and sell $15 billion in risky mortgage assets to BlackRock Inc. (BLK: 219.16, +3.76, +1.8%) to offset first-quarter losses of nearly $11 billion. Read full story. Legg Mason Inc. (LM: 57.56, -5.20, -8.3%) shares fell 7.5% after the Baltimore firm posted its first quarterly loss as a public company. Read full story.
Builder D.R. Horton (DHI:16.67, +0.70, +4.4%) , among the nation's largest home builders, reported a $1.3 billion quarterly loss on housing weakness and turmoil in mortgage markets. See full story.
Other results on the earnings front included Emerson Electric Co. (EMR: 56.13, +2.71, +5.1%) upping its profit forecast for the year, Joy Global Inc. (JOYG: 78.99, +0.35, +0.5%) trimming its yearly estimate, and Qwest Communications International Inc. (Q: 5.09, -0.27, -5.0%) reporting a 35% profit drop.
After the close, Walt Disney Co. (DIS:33.74, +0.45, +1.4%) and Cisco Systems Inc. (CSCO: 26.36, +0.08, +0.3%) are slated to report quarterly figures.
Kate Gibson is a reporter for MarketWatch, based in New York.
Comments:
Knipfty 3 hours ago
Perhaps the credit crunch not being as bad as once thought. Employment remaining strong. The economy picking up some steam. Earnings continuing to build. Exports increasing at a faster rate than imports.
The Olympics. The Yankees winning another world series. It's not all doom and gloom. Many parts of the economy are just fine.
martscan 3 hours agoWish I could agree with you...but I can't. No one really believes the BLS employment figures. One of the certainties you can expect from a govt, any govt, is that it lies. Employment and inflation figures that this govt publishes are a case in point.
I don't see the economy "picking up some steam". On the contrary, earnings figures have at least a 3 month lag time so current #s can be discounted. And, California represents about 14% of the country's GDP, given its size and diversity, easily the most important state barometer of the economy in the country, and the latest unemployment rate has shot up to 6.2% despite the state's positive export business. Yes, construction represents a large segment of this but the size of the latest increase indicates a general spilling over into all facets of the economy. If it wasn't for the competitive value of the dollar, vis-a-vis the currency pool, our balance of trade would be worse and our national GDP would be negative. Stick with the White Sox.
jackkreg 3 hours ago
Go Angels, just had to get in my take on the race.
Knipfty, you have got it right, there are a lot of positives, but many bad news to justify there negative opinions.
Martscan, "no one really believes the BLS". well I am sure that there are more than a few, probably the ones that are buying the market, What do they know that the rest of us don't? Actually, nothing, the difference is that they actually believe the information and news, all of it, they are objective, not predetermind.
Maybe the market is right? certainly a possibility.
martscan 2 hours agoAlas, regardless of the economic pablum the govt feeds the media, we have to trade on the perception.
Take two, and hit to right.
downwego 4 hours ago
Has anybody read this article today?
getting ready to go to level 4? which is self destruct?
Merrill Says Level 3 Assets Jump 70% in First Quarter (Update2)
By Joyce Moullakis
May 6 (Bloomberg) -- Merrill Lynch %26 Co. said so-called Level 3 assets climbed 70 percent in the first quarter, as the largest U.S. brokerage reclassified commercial mortgages and other assets as hard to value.
Merrill's Level 3 assets, the firm's most difficult to value, rose to $82.4 billion as of March 28 from $48.6 billion at the end of December, according to a regulatory filing today. The New York-based company's ratio of Level 3 to total assets rose to 8 percent from 5 percent.
While many subprime-related assets that lost almost 100 percent of their value since July were categorized in Level 3, other holdings such as private-equity stakes, real estate and rarely traded corporate debt are also included because market prices for them aren't available. More assets have become difficult to value in the last three months as investors shunned a wider array of credit, freezing the trading of securities.
``Valuation-related issues confronted by ourselves and market participants since the second half of 2007 include uncertainty resulting from a drastic decline in market activity for certain credit products,'' Merrill said in the filing.
Merrill fell $1.75, or 3.4 percent, to $49.65 as of 10:15 a.m. in New York Stock Exchange composite trading.
The company transferred $5.6 billion of European commercial mortgages and $12.2 billion of credit derivative assets to Level 3 from Level 2, the filing showed.
Merrill's Level 3 assets include mortgage-related holdings which sit within trading assets of $9.3 billion, according to the filing. Derivative assets accounted for $20.6 billion, loans measured at fair value for $12.5 billion, credit derivatives for $18 billion and private equity and principal investments for $4.3 billion, it said.
Goldman, Morgan Stanley
Other New York-based securities firms have also had a rise in Level 3 assets. Goldman Sachs Group Inc.'s holdings of the assets surged 39 percent to $96.4 billion in the fiscal quarter ending in February. Morgan Stanley reported a 6.1 percent increase to $78.2 billion.
Citigroup Inc., the biggest U.S. bank, yesterday said Level 3 assets rose by 20 percent in the first quarter to $160.3 billion.
Merrill also said it's received requests from government departments for information on auction rate securities and the recent failure of auctions, the filing said. The firm is ``cooperating'' with the requests.
jmoullakis@bloomberg.net
Last Updated: May 6, 2008 10:21 EDT
martscan 3 hours agoNo, I hadn't read it. Thank you for bringing it to my attention. Why don't traders realize that anyone connected with Wall Street, when commenting for public consumption, always sees things through rose colored glasses? It is the arcane, esoteric information, such as you bring to light here, that is indicative of the true condition of the situation, much as the internist diagnoses an unseen cancer in the bowels of the patient.
Knipfty 3 hours ago
All this doom and gloom and for what? The price of oil? According to BLS statistics, the price of gasoline makes up just 5.5% of the typical household budget. That is up from 4% one year ago. The typical household earns 50k.
That means the typical household has seen the cost of fuel go from $167 to $230. That is just $63 per month increase.
$63 is not the end of the world. If it is, then I'd suggest that there are other things going on inside your family budget. The most likely explanation is that for the typical family, it's no big deal. Witness how well iron man did this weekend. Or the people lining up for grand theft auto. People apparently have some money to spend, even with higher gasoline costs.
All this doom and gloom is nothing but a bunch of hot air.
LostHoosier 3 hours ago
Here's the problem Knipfty. I'll make it simple. People are managing to get by for the most part, but those of us without pom poms don't see things getting a whole lot better in the near term. We see our home equity evaporating as the cost of everything (food, transportation, health care, taxes etc. continues its unabated rise). That concerns us, as it would any prudent person, and it explains why consumer confidence is at a 40 year low. As for your $63/month comment, well, that's laughable. So you believe in government statistics...good for you! How many other posters do?
martscan 2 hours agoI agree with Knipfly. The true measure of the cost of gasoline to a consumer, relative to what a standard might be, is not its price, per se. It is the per cent of disposable income one has to pay for it. Adjusting both income and expense for inflation, simply stated and all things being equal, would you rather pay $1.00/gal for gas and earn $5,000/yr or pay $4.00/gal and earn $40,000/yr? Figure it out.
Knipfty 2 hours ago
A tax rate of 30%? Please. A typical family of 4 or 5 will pay almost no federal income taxes. That leaves 7.65% for FICA, your state income tax if any, and property taxes. May be 10% to 15% in taxes. Maybe.
I didn't say anything about how well people live on 50k. I just said it was typical.
DubyaDeeBee 46 minutes ago
JustPlainBill - looks like you're the one in Never Never land. With household income of $50k, worst case scenario (std deduction, only 2 exemptions, high tax state, etc) would put net at about $40k (fed income tax about $4400, FICA about $3600, state income tax about $2000). For the majority of Americans, household income of $50k would net closer to $42000. Granted, not enough to live the "high life", but I know alot of folks getting by just fine on less.
garelj 3 hours ago
And here I thought the rise in gasoline had alot to do with the rise in prices for food....thanks Knipfty for pointing out it doesnt.
martscan 2 hours agoThe rise in the price of gasoline/oil does contribute to the increased prices of food. to the extent that the cost of energy needed to produce the food increases.
The increased allocation of tillable acreage to the production of corn, for the production of ethanol (a bust) which has caused a lessening of acreage available for the production of other food crops, has caused the increase in food prices.
Jailtheinsiders 3 hours ago
Actually Knipfty I read that the "average" family is spending upwards of 200.00 dollars extra per month. That is 2,400.00 per year my friend. And when your wages aren't going up say that is a big time problem. One can get by as long as the job is there. What if you worked for FM today and got layed off? UH OH!!!
And inflation is only going to get worse by this time next year that average could be 400.00. Thank the Fed when you see gas at 5 bucks next year.
jackkreg 2 hours ago
I know, lets raise taxes on the rich, and use the tax money to subsidize gas, tax the greedy oil companies. Then we can lay down all the gloom and doom, and life will be happy, we can watch the rich whining about high taxes and oil CEO's getting pay cuts. That should make us all happy.
Poor but happy.
martscan 2 hours agoThe Fed doesn't have a d*** thing to do with the rate of oil consumption in emerging countries.World markets determine oil prices.
BabaJ 3 hours ago
Read Nouriel Roubini at RGEmonitor.com/ btw this guy is one of the few to have been right all along. After analysis of why Ben's bailout isn't working, he concludes:
"...So the liquidity crunch remains severe in spite of all of the extreme policy actions by the Fed and other central banks. In forthcoming note we will show why the recent stock market rally is just a bear market sucker’s rally; and why the credit crunch is getting worse rather than getting better. The worst is still ahead of us both for the real economy that is spinning into a more severe recession and for financial markets where unrecognized losses are much larger ahead than the losses that have been already recognized."
martscan 2 hours agoYou have it right BabaJ.........Roubini is worth every penny of his counsel.
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