Wall Street Opens Week In Positive Mood
Stocks on Wall Street ended sharply higher after the government seized
mortgage giants Fannie Mae and Freddie Mac to prevent trillions of
dollars in mortgage-backed securities from defaulting and to bring down
mortgage rates nationwide. However, some technology stocks saw
weakness, keeping the Nasdaq under pressure for much of the session.
In
volatile trading session the stocks moved back to the upside in late
day trading, sending the Nasdaq back into positive territory. The
Nasdaq closed up 13.88 points or 0.6% at 2,269.76, largely due to the
underperformance of large-cap tech stocks. The Dow closed up 289.78
points or 2.6% at 11,510.74 and the S&P 500 closed up 25.48 points
or 2.1% at 1,267.79.
Over the weekend, the Treasury department
announced that it was taking control over the mortgage giants, who own
or back about half of the nation's mortgage debt. The news has renewed
hopes for a turnaround in the housing market. As part of the plan, the
Federal Housing Finance Agency will assume the power of management at
the companies while also replacing the chief executives at both firms.
Additionally, the plan calls on the Treasury Department to purchase $5
billion of mortgage-backed securities within the next month.
Adding
to the positive mood on Wall Street, Altria Group said it has agreed to
acquire UST Inc., the world's leading moist smokeless tobacco maker,
for $69.50 per share in cash. The transaction is valued at
approximately $11.7 billion, which includes the assumption of about
$1.3 billion of debt.
While most of the financials ended the day
notably higher on the news, there were some notable financial laggards,
though. Lehman Brothers gave up an early advance on continued
speculation that the company needs capital. Washington Mutual fell 6%.
Washington Mutual reported early in the morning that it ousted its CEO
and agreed to give more updates to its regulator.
Meanwhile at
Nasdaq, the day marked a sharply higher, and volatile, start to the
trading week. The weakness in the tech sector kept the Nasdaq under
pressure for much of the day. Some of the largest tech companies came
under selling pressure on no specific catalyst, which caused the tech
sector to under perform on a relative basis. Goggle, Oracle and Apple
all declined.
The stock market saw some volatile action after
headlines crossed the wires that incorrectly said UAL Corporation,
parent company of United Airlines, filed for bankruptcy protection. UAL
quickly said the report was false, saying the report came from a 2002
article. UAL fell as much as 76% and then recovered to a loss of 11%.
However,
the housing stocks turned in some of the best performances throughout
the session, boosted by the news that the government was taking over
Freddie Mac and Fannie Mae. The Philadelphia Housing Index ended the
session up 7.2%, reversing a sharp decline seen on Thursday. With the
gain, the index set a three-month closing high. Within the housing
sector, Champion Enterprises and Meritage Homes were among the biggest
gainers. Champion closed up 18.6%, compared to an 18.1% gain by
Meritage.
On the economic front, the Federal Reserve released its
report on consumer credit in the month of July, showing that credit
increased by much less than economists had been expecting. The report
showed that consumer credit increased by $4.56 billion or at a 2.1
percent annual rate to $2.587 trillion in July.
Turing towards
the crude oil which settled nearly unchanged at $106.26 per barrel
after climbing as much as 3.5% in earlier trade on speculation of
Hurricane Ike's potential impact on Gulf of Mexico production. The
retreat from session highs coincided with gains in the dollar, which
rose 0.6% against a basket of world currencies.
Looking at the
other regions as well we saw most of the major Asian markets advanced
solidly on the back of the U.S. government's efforts to save Fannie Mae
and Freddie Mac. The Nikkei 225 ended at 12624.46 points, adding 3.38%
while TOPIX also added about 4%. Hang send ended up 4.32% to close at
20794.27 points while Korea?s KOSPI added more than 5% to close at
1476.65. India?s BSE Sensex ended up 3.18% at 14944.97. The European
markets ended the day notably higher as well.
Looking ahead for
the day, the National Association of Realtors will release its report
on pending home sales, which is the leading indicator on the sale of
existing homes. At the same time, the Department of Commerce will
release its wholesale trade data.
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