Stocks turned mixed Monday as enthusiasm for the Federal Reserve's actions this week helped the market perform better than expected after the weekend fire sale of Bear Stearns.
The Dow Jones Industrial Average tip-toed into positive territory, buoyed by JP Morgan. The S&P 500 index and Nasdaq were down about 1 percent as financials, ex-JP Morgan, were hammered.
The dollar dropped to its lowest level against the yen since 1995 and withered against the euro and Swiss franc, reflecting shaky confidence in the U.S. economy and financial system. Stocks plunged in Europe and Asia.
So, why wasn't it worse on Wall Street?
"What's essentially at work here is that people are realizing that, almost no matter what happens ... there isn't going to be financial Armageddon over some large institution failing," said Michael Cohn, chief investment strategist at Atlantis Asset Management. Investors are encouraged by the fact that "the Fed is there and they're going to do what they can."
"I think what's keeping the market from going a lot lower ... is that it has already baked in a substantial number of negatives," said Al Goldman, chief market strategist at A.G. Edwards.
JP Morgan was the Dow's top gainer as investors cheered the investment bank's weekend bargain -- it's paying just $2 a sharefor Bear Stearns, which hit $171 in January 2007. Some analysts point out that even Bear's Wall Street real estate alone is worth more than $2 a share. The deal, announced late Sunday, values the fifth-largest U.S. investment bank at $236 million, one-fifteenth of its market value on Friday.
Among other blue chips pulling up the Dow were telecoms Verizon and AT&T , and health-care stocks such as Merck and Johnson & Johnson .
The Fed agreed to provide $30 billion of special financing to JP Morgan, to back some of Bear Stearns less liquid assets, which means if the assets decline in value, the Fed would take the hit, not JP Morgan.
Also late Sunday, the Fed lowered its discount rate, the rate at which it lends directly to banks, by a quarter percentage point to 3.25 percent. The central bank also set up a program to provide cash to investment banks, something it hasn't done since the Depression, nearly 80 years ago.
Still, there were rumblings in the market that the Fed, despite all of it's unprecendented and historically rare moves, hasn't done enough.
"The message in the market today -- because it didn't collapse -- is that the Fed is doing enough," Goldman said. "The rest is going to take time to shore up confidence in the credit markets."
Cohn agrees that the Fed is pulling out all the stops. "Essentially, the only other alternative is a government fund to take over all of these bad securities," Cohn said. "In the absence of that, yes, I think the Fed is doing everything it can to stem this financial crisis."
Fed-funds futures are pricing in a rate cut of at least three-quarters of a percentage point when the Fed meets tommorow, and there's a strong contingency that believes it will be more like a whole percentage point.
Among the sectors ticking higher were semiconductors, telecoms, health-care and consumer staples.
Still, investors hammered financials, ex-JP Morgan, around the world amid concerns that, after the collapse of Bear Stearns, no bank is safe. The S&P financials index dropped more than 4 percent.
"The fall of Bear Stearns was pretty much a victory for the rumor mongers, and that means possibly nobody's safe," Art Cashin, director of floor operations at UBS Financial Services, told CNBC. "They'll be rumors around about anybody ... they'll see if they can cause a run wherever they are."
Lehman Brothers plunged more than 20 percent amid rumors that it might be the next domino to fall. Swiss bank UBS has also come under the microscope.
Shares of MF Global plunged as the world's largest futures brokerage tried desperately to convince the market that it has enough cash to keep operating, in order to stave off a Bear Stearns-like death spiral. The company said it has no exposure to subprime mortgage backed securities.
Investors also punished financial-execution firms, including Interactive Brokers, E*Trade and TradeStation .
Among other big financial firms, Morgan Stanley declined, even though Goldman Sach suggested that it, along with JP Morgan, has one of the strongest balance sheets in the sector. Citigroup was the biggest decliner on the Dow. Merrill Lynch and Goldman Sachs also fell.
Shares of Fannie Mae and Freddie Mac declined after an analyst said both government-sponsored mortgage-finance companies need to raise about $20 billion.
Shares of PMI Group fell sharply after the mortgage insurer reported its biggest ever quarterly loss, citing losses from its investment into bond insurer FGIC, and said it will continue to post losses in 2008. PMI also slashed its dividend by 70 percent.
Billionaire Wilbur Ross agreed to buy H&R Block's mortgage-loan-servicing business, Option One Mortgage, for $1.1 billion.
Humana jumped after Hilliard Lyons raised its rating on the stock to "buy" from "neutral." Last week, Humana sharply lowered its full-year outlook, but analysts noted that it was a matter of mispricing of a Medicare-prescription plan, not as a result of broader problems affecting the health-care sector.
Coventry Health Care , however, skidded after the HMO lowered its outlook, citing higher-than-expected costs related to the flu. The number of flu cases shot up in January as new strains emerged.
In economic news, homebuilder sentiment remained near historic lows in March, according to a report from the National Association of Homebuilders. The NAHB/Wells Fargo Housing Market index held steady at 20, as expected. The record low was 18 in December.
In the manufacturing sector, the New York Fed reported its Empire State Manufacturing Index dropped to a record low of minus 22.23 in March, from minus 11.72 in February. The Chicago Fed's measure of midwest manufacturing slipped 0.1 percent to 105.4 in January, after a revised 0.2 percent rise in December. Industrial production slipped 0.5 percent in February. The
The U.S. current account deficit unexpectedly narrowed in the fourth quarter to $172.9 billion from a downwardly revised $177.4 billion in the third quarter, the Commerce Department reported.
MONDAY: David Paterson to take over as NY governor; Chicago Fed manufacturing report; NAHB housing report
TUESDAY: Fed meeting; Earnings from Goldman, Lehman; PPI; Housing starts
WEDNESDAY: Morgan Stanley earnings; Visa IPO; Crude inventories; New York Auto Show
THURSDAY: Weekly jobless claims; Philly Fed report; FedEx earnings; Bond market closes early
FRIDAY: Financial markets closed for Good Friday holiday
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