Stocks rallied as investors breathed a triple-digit sigh of relief following news of a government bailout of Fannie Mae and Freddie Mac. But techs limped to the finish line amid nagging worries about the impact of a global slowdown on demand.
The U.S. government on Sunday seized control of Fannie Mae and Freddie Mac in what could be its biggest bailout ever. The CEOs of both companies were ousted and the Treasury is expected to put up as much as $200 billion for the rescue effort.
Stocks shot out of the gate following news of the bailout, but the air started to come out of the rally intraday as techs started to drag and investors worried that the bailout of Fannie and Freddie wouldn't fix the bigger problems in the housing and credit markets.
"This [bailout] gave a lot of the banks a nice boost but there wasn't really a broader impact as it does very little to change what's forced the market down in recent weeks, which is that economies are struggling not just in the U.S. but globally — this so-called demand destruction," said Marc Pado, U.S. market strategist and technical analyst at Cantor Fitzgerald in San Francisco.
A late-day rally in techs, financials and consumer-discretionary stocks helped put some of the air back in. The Dow Jones Industrial Average finished up 289.78, or 2.6 percent, at 11510.74. All Dow components but Alcoa finished higher. (Track the Dow 30 stocks.)
The S&P 500 and Nasdaq were also higher but the tech-heavy Nasdaq was the laggard of the three amid worries about the global slowdown on tech-product demand.
Trading was lighter than usual on the New York Stock Exchange, about 1.66 billion shares compared with the average of 1.9 billion. Nasdaq trading, however, weighed in at a hefty 2.57 billion shares compared with the average 2.17 billion.
Semiconductor stocks were one of the biggest drags on the Nasdaq after several brokerages downgraded their ratings on National Semiconductor based on the firm's lower profit and weak revenue outlook. NSM shed 1.3 percent.
Apple dropped 1.4 percent ahead of a highly-anticipated event on Tuesday. The speculation swirling around the market is that Apple will unveil new iPod Nanos, more storage on the Shuffle, possibly Bluetooth for some headphones and maybe even a deal with the Beatles. Sounds interesting but the fact that the stock is languishing today suggests that investors may have a case of Apple fatigue.
Research In Motion , maker of the rival BlackBerry device, dropped 4 percent.
Cisco jumped 5 percent, helping the Nasdaq claw out of negative territory, after Goldman Sachs said the networking-gear maker was one of its favorites in the tech sector.
Elsewhere on the Nasdaq, shares of UAL, parent of United Airlines, tumbled 11 percent to close at $10.92, after earlier confusion that resulted when a six-year-old Chicago Tribune report was republished on the Florida Sun Sentinel's Web site with a fresh datestamp, prompting false rumors that the company was again filing for bankruptcy. A giant trade briefly left the boards showing the stock down to one cent; that trade was later cancelled and the stock was actually halted at $8.97.
Financials leaped 4 percent, with sharp gains in companies that own a lot of Fannie and Freddie debt, including Bank of America and Citigroup, the top two gainers on the Dow at 7.9 percent and 6.6 percent, respectively.
That's what helped the Dow outperform the other major indexes today, Pado said, the fact that it's stacked with financials such as Bank of America, JPMorgan and Citigroup.
AIG, which owns a lot of Fannie and Freddie debt, wobbled a bit, but ended with a gain of 1.9 percent.
Homebuilders also rallied on the news as mortgage rates dropped, spurring hopes for an increase of buyers. Lennar , Pulte Homes and DR Horton all gained more than 10 percent.
Shares of Fannie Mae and Freddie Mac, plunged 89 percent and 83 percent, respectively, while their debt soared, as investors bet that the bailout would wipe out the companies' stocks but fully guarantee their bonds.
The bailout may have given investors some short-term plays but market pros are convinced that it won't be enough to drive the bears out of the market.
Tony Crescenzi of Miller Tabak adds that the bailout was already priced into the market. Where you should be looking, Crescenzi writes, is at the dollar. This bailout will help keep the dollar's rally going, he says.
The dollar hit a one-year highagainst a basket of currencies following the news.
Crude oil , meanwhile, ticked up 11 cents to settle at $106.34 a barrel.
Lehman Brothers tumbled 13 percent. Company officials are hoping to finalize plans to raise capitaland sell off bad debts sometime this week, though the exact nature of the effort is still in flux, people close to the company told CNBC. There was also some buzz that the company may be moving closer to selling its Neuberger Berman asset-management unitas company officials called the unit's staff in for a meeting.
Washington Mutual skidded 3.5 percent after the beleaguered bank ousted CEO Kerry Killinger. He will be succeeded by Alan Fishman, who is now chairman of mortgage broker Meridian Capital Group, the Wall Street Journal reported.
Boeing shares gained 1.6 percent as workers were on strike for a third straight day. Analysts estimate that each day of the strike will cost the aerospace giant $100 million in sales and one cent a share in profit.
In merger and acquisition news, cigarette maker Altria Group has agreed to buy UST, the maker of Skoal and Copenhagen smokeless tobacco, for about $10.3 billion in cash. Shares of UST jumped 2 percent, while Altria was mostly flat.
On this busy trading day with the Fannie-Freddie news, the London Stock Exchange ground to a halt as the worst technical glitch in eight years shut down trading for nearly seven hours.
A rally in banks boosted other European exchanges, with gains of more than 10 percent in UBS , Royal Bank of Scotland, Barclays and Credit Agricole.
Asian stocks also soared, with Seoul gaining as much as 5 percent and the Nikkei closing up 3.4 percent.
THIS WEEK:
TUESDAY: Pending-home sales; wholesale trade
WEDNESDAY: Weekly mortgage applications; crude inventories
THURSDAY: Import/export prices; international trade; weekly jobless claims; Treasury Budget
FRIDAY: Producer prices; government reading on retail sales; business inventories; consumer sentiment
Send comments to cindy.perman@nbcuni.com.
