Stocks Recoup Losses on S&P Forecast
Thursday March 13, 1:51 pm ET
By Tim Paradis, AP Business Writer
Stocks Rebound From Steep Drop As S&P Forecasts End Is Near for Asset Write-Downs
NEW YORK (AP) -- Wall Street recovered from an early plunge Thursday to trade higher after Standard & Poor's predicted financial companies are nearing the end of the massive asset write-downs that devastated the stock and credit markets for months.
ADVERTISEMENT
The S&P projection gave investors some optimism that the seemingly unrelenting fallout from the mortage and credit crisis might indeed come to an end. Standard & Poor's Ratings Services estimated that writedowns of subprime asset-backed securities could reach $285 billion globally, up from a previous $265 billion projection. Still, S&P's statement that "the end of write-downs is now in sight for large financial institutions" gave investors some hope.
The statement enabled the Dow Jones industrial average to rebound. The blue chip index was trading up 31.02, or 0.26 percent, at 12,141.26 by early afternoon after being down more than 220 points earlier.
"The S&P comment was a positive for the market because investors were relieved to think that the subprime problem may be behind us," said Al Goldman, chief market strategist at A.G. Edwards. "The question is whether investors will be relieved enough to continue to come in and buy what I think is a bear rally. I think the market has a good chance to feed on this news and go higher."
But there still was a great deal of caution in the market, which on Wednesday had abandoned its initial euphoric response to a Federal Reserve plan to auction $200 billion in Treasurys to help alleviate the financial bind that investment banks have been in since the credit crisis began last year.
The weakness of the U.S. dollar and strength in commodities prices also weighed on the market. The dollar dropped to fresh lows against the euro and fell below 100 yen during Asian trading Thursday, the weakest level for the greenback against the Japanese currency in 12 years. Gold surpassed the psychological benchmark of $1,000 an ounce for the first time, and crude oil briefly passed $111 a barrel.
Broader market indexes also recovered from steep early losses. The S&P 500 index rose 5.65, or 0.43 percent, to 1,314.42, while the Nasdaq composite index rose 16.45, or 0.73 percent, at 2,260.32.
Talk of regulatory changes for the mortgage industry Thursday did little to placate the market. Treasury Secretary Henry Paulson outlined a plan to provide stronger oversight of mortgage lenders, whose lax standards are blamed for touching off the concerns about souring debt that have led to turmoil in the credit markets.
It appeared that what investors are really looking for is proof that the market's pain, and the economy's, will end. The S&P forecast seemed to provide more of a balm than any regulatory changes could.
The market was also concerned by more evidence of weak consumer spending. The Commerce Department reported that retail sales fell last month, after analysts predicted an increase.
"Things just aren't good for the consumer, and thus, they're not good for Wall Street, said Kim Caughey, equity research analyst at Fort Pitt Capital Group.
Meanwhile, no one is positive which companies and which investors are going to end up losing money if more funds collapse. "It is going to be difficult to see who has the Old Maid card. And time will tell," Caughey said.
The Fed's Open Markets Committee meets next Tuesday and is widely expected to lower interest rates, with many analysts forecasting a drop of 0.50 percentage point. However, in the past few weeks investors have been questioning whether another rate cut will help the economy.
Bond prices rose as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.47 percent from 3.44 percent late Wednesday.
Thursday's stock decline follows moderate losses Wednesday and a 416-point rally Tuesday. Those sharp gains followed news of the plan by the Fed -- and coordinated with other major central banks -- to lubricate near-frozen credit markets with an infusion of as much as $200 billion.
Analysts in the United States noted Wednesday that the U.S. housing market remains in tatters, while inflation is a growing threat to consumer spending that is already showing signs of weakness. While the Fed's plan to make more money available to financial institutions can help, it won't solve the many deepening economic problems in the United States.
The dollar's slide is of particular concern because it is helping to send commodities prices including oil to greater highs -- in turn feeding the growth of inflation.
Light, sweet crude was down 14 cents at $109.78 on the New York Mercantile Exchange, after briefly breaching $111 a barrel.
In other economic findings, the Labor Department said the number of workers seeking unemployment benefits was unchanged last week. A government report released last week said employers cut payrolls by 63,000 in February -- the second straight month of losses -- and sent a wave of unease across Wall Street. Some economists regard back-to-back declines in monthly payrolls as a sign the economy won't be able to avoid recession.
Advancing issues outnumbered decliners by about 8 to 7 on the New York Stock Exchange, where volume came to 1.05 billion shares.
The Russell 2000 index of smaller companies rose 11.76, or 1.76 percent, to 679.07.
Overseas, Japan's Nikkei 225 index tumbled 3.3 percent to its lowest level in 2 1/2 years. Britain's FTSE 100 fell 2.11 percent, Germany's DAX index slid 2.60 percent, and France's CAC-40 lost 2.73 percent.
