Wall Street Lands on Green After Wild Ride

Quoted from http://www.foxbusiness.com/markets/article/wall-street-lands-green-wild-ride_403608_2.html:

Wall Street Lands on Green After Wild Ride

Wednesday, Dec. 12 2007

Uptick

Wall Street Lands on Green After Wild Ride

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Wall Street finished in the green this afternoon but it certainly didn’t feel like it. A plan by the Fed to instill confidence and liquidity into the financial sector led to a 270 point rally on the Dow but Wall Street lost all of those gains and dipped into the red before eventually finishing higher.

Today’s Markets

The Dow Jones Industrial Average gained 41.13 points, or 0.31% to 13473.90, the Standard & Poor’s 500 index picked up 8.94 points, or 0.61% to 1486.59 and the Nasdaq Composite Index rose 18.79, or 0.71%, to 2671.14. The consumer-friendly Fox 50 gained 6.47, or 0.61%, to 1074.74.

Within minutes of the opening bell the Dow had rallied close to 300 points as traders initially cheered the Fed plan — but that didn’t last very long.

Just an hour before the closing bell the Dow fell more than 100 points into the red as several key financial downgrades weighed on the markets.

As if on cue, oil prices re-entered the picture this afternoonon news of an unexpected 700,000 barrel drawdown in U.S. crude supplies. Oil prices were also feeling pressure from a major ice storm in the Midwest that froze a vital pipeline in Oklahoma.

In New York, oil prices surged$4.37 to settle at $94.39 a barrel.

The financial sector, which initially advanced on news of the Fed plan, was reeling after Merrill Lynch (MER: 58.81, +0.20, +0.34%) downgraded Wachovia (WB: 40.53, -1.42, -3.38%) to “sell” and also cut Bank of America (BAC: 43.43, -1.22, -2.73%) and JP Morgan Chase (JPM: 46.15, +0.21, +0.45%) to “neutral.”

“I think it’s all been led by pronounced weakness from the financial sector right out of the gate. It kind of put the kibosh on all of that. Right now we’re in a pretty nasty situation going into the final hour,” said Todd Clark, director of trading at Nollenberger Capital Partners.

Citigroup (C: 31.47, -1.76, -5.29%), the nation’s largest bank, fell sharply on the day as investors had their first opportunity to weigh in on the company’s new CEO Vikram Pandit.

Morgan Stanley (MS: 50.37, +0.42, +0.84%) weighed in by naming Citi its top short idea of 2008 based on the bank’s earnings outlook and a threat of a dividend cut.

“The fact that Morgan Stanley would list another major financial services company as the short sale idea for 2008 clearly reflects the lack of confidence investors currently have on America’s biggest banks, brokers and lenders,” said Frederic Ruffy, analyst at Optionetics.

The biggest gains on the Dow went to AT&T (T: 41.71, +2.25, +5.70%), which continued its two-day rally after yesterday boosting its dividend and beginning a stock buyback plan.

3M (MMM: 86.66, +2.01, +2.37%), the industrial giant and Dow component, also helped counter the financials after the company said it sees 10% earnings growth in 2008.

The Federal Reserve announced moves this morning to help thaw the credit crunch that has been hurting global economies and weighing heavily on traders.

The Fed intervention will take the form of a series of auctions in which the central banks will loan more than $40 billion – at interest rates far below what is known as the “discount window.” Banks typically borrow from the discount window as a lender of last resort.

“Basically they are trying to sexy up the discount window by making it more attractive to borrow from,” said Peter Boockvar, equity strategist at Miller Tabak.

A senior Fed official told reporters anonymity will be granted to banks take advantage of the auctions.

Despite troubles at several of the largest banks related to the subprime mess, a senior Fed official said this morning: “This is not about particular financial institutions with particular problems, it is about market functioning.”

The moves were welcomed by Wall Street because the recent reluctance from banks to make credit available has threatened to cause a global slowdown.

“They did the right step. This is trying to get the banking balance sheets healthy again and getting the banks making loans again,” said Paul Nolte, director of investments at Hinsdale Associates.

This follows yesterday’s decision by the FOMC to cut the nation’s primary interest rate by 0.25% in an effort to help increase spending and give a jolt to the economy.

While the general consensus was that the Fed would cut rates by that amount, there was significant disappointment from Wall Street that the discount rate was not lowered more than 0.25%. Stocks sold-off yesterday with the Dow losing nearly 300 points.

The Fed made several similar moves to those announced today in 1999 when there were fears that the so-called millennium bug would hurt the economy.

“They are dusting off their Y2K play books,” said Boockvar.

Corporate Movers

Bank of America (BAC: 43.43, -1.22, -2.73%) was heading south after CEO Ken Lewis warned of more write-downs and sub-par fourth-quarter earnings, according to Dow Jones Newswires. Lewis made the comments at a
Goldman Sachs (GS: 212.58, +1.43, +0.67%) conference. In an SEC filing the bank also warned its fourth-quarter write-downs could be more than the previously expected $3 billion.

Boeing (BA: 86.92, -1.78, -2.00%) declined after the industrial giant was downgraded to “equalweight” from “overweight” by a Morgan Stanley (MS: 50.37, +0.42, +0.84%) analyst. “While the stock is cheap, event risk overrides BA’s attractive valuation in the near term. We have a new level of concern the 787 risks are likely to linger over the stock and not be retired as we had earlier believed,” the analyst said.

ExxonMobil (XOM: 91.92, +1.64, +1.81%) was a big gainer after the energy company said it is building a floating natural gas terminal off the New Jersey shoreline for $2 billion.

Office Depot (ODP: 15.04, -1.95, -11.47%) plummeted 11% to a new annual low after the office supplies company said its fourth-quarter earnings and sales would likely erode. Office Depot did not give a specific earnings forecast for the quarter.

Sallie Mae (SLM: 28.49, -3.45, -10.80%) fell hard and hit another annual low after the company cut its 2008 earnings outlook and said potential buyer J.C. Flowers is no longer interested. When the Flowers group, which included Bank of America and JP Morgan Chase, approached the education lender earlier this year their offer was for $60 a share - double the stock’s current value.

Security Cap Assurance (SCA: 5.45, -1.52, -21.80%) lost 21% of its market cap this afternoon after the financial insurance company was put on negative ratings watch by Fitch Ratings.

Tribune (TRB: 31.90, +0.36, +1.14%) said it plans to sell the Chicago Cubs and Wrigley Field during the first half of 2008. The company also said it expects its $8.2 billion deal to go private by the end of its fiscal year.

XM Satellite Radio (XMSR: 13.21, -1.45, -9.89%) and Sirius Satellite Radio (SIRI: 3.29, -0.21, -6.00%) were both heading south this afternoon. Traders may have beens speculating about a potential decision from the FCC on the planned merger between the two companies.

Valero (VLO: 66.43, +1.45, +2.23%) closed more than 2% higher this afternoon. The San Antonio energy company announced yesterday that Greg King will step down as president at the end of the year.

Dow Jones (DJ: 59.97, +0.02, +0.03%) shareholders approved the company’s sale to News Corp. (NWS: 21.65, +0.26, +1.21%) this afternoon, the Wall Street Journal reported. Dow Jones is the publisher of the Journal. News Corp. is the parent company of FOX Business.

Biogen (BIIB: 75.88, +0.49, +0.64%) announced after the closing bell that it won’t be seeking a sale of its company. The company had been in a two-month process to see which direction it would go in. Shares of the biotech company fell sharply in after-hours trading.

World Markets

European markets followed Wall Street’s rallies this morning. The Dow Jones Euro Stoxx 50 index, a 50-member market capitalization index of some of top European companies, rose 19.52 or 0.44%, to 4469.47. The FTSE 100, the primary index for the London Stock Exchange, gained 22.90 points, or 0.35%, to 6559.80.

France’s CAC 40 index rose 18.56 or 0.32%, to 5743.32 and Germany’s DAX picked up 66.70, or 0.83%, to 8076.12.

In Asian markets, Tokyo’s Nikkei 225 dropped 112.46 points, or 0.7%, to 15932.26. The Hang Seng Index, the benchmark for the Hong Kong Stock Exchange, plunged 705.78, or 2.41%, to 28521.06.

Data Dump

Export prices rose 0.9% from the year prior, the biggest increase in 12 years. Import prices also increased 2.9%, mainly because of the weakening U.S. dollar. It was increase in 17 years.

Meanwhile the U.S. trade deficit in October hit its highest level in three months to $57.8 billion. That represents a 1.2% increase from September.

The U.S. trade deficit with China rose 9.1% to another record at $25.9 billion.

On Friday, the monthly consumer price index is released, which is considered the indicator for inflation.