Buffett Boosts the Market; Goldman Rises
Stocks made a modest advance Wednesday after Warren Buffett, one of the most highly-regarded investors, calmed the anxious market with a $5 billion investment in Goldman Sachs.
All three major indexes — the Dow Jones Industrial Average, the S&P 500 and the tech-heavy Nasdaq — opened higher. Bank of America and JPMorgan were among the biggest gainers on the Dow. (Track the Dow winners & losers.)
Goldman Sachs shares jumped on the news. Under terms of the deal, Buffett's Berkshire Hathaway will buy $5 billion of perpetual preferred stockthat carries a 10 percent dividend. It also will receive warrants to buy $5 billion of common stock at $115 per share, exercisable within five years, which could give it a roughly 10 percent stake in Goldman. Last week, Goldman said it averaged 448.3 million common shares in the quarter ended Aug 29.
Sumitomo Mitsui Financial Group, Japan's third-largest bank, plans to invest several billion dollars in Goldman, Kyodo news agency reported. SMFG spokesman Lucas van Praag said he could not confirm the Kyodo report.
Meanwhile, questions continue to mount on the fate of the government's $700 billion bailout package under debate in Congress, with some traders disappointed of the way the Federal Reserve has presented the case to lawmakers.
Federal Reserve Chairman Ben Bernanke bluntly warned reluctant lawmakers Tuesday that they risk a recession with higher unemployment and increased home foreclosures unless they act on the bailout.
Paulson drove home the need to get the plan approved now: "I feel a great urgency. I believe it's got to be done this week or before you leave," Paulson told a Senate panel.
But influential lawmakers in both parties demanded changes in the White House-backed proposal, and conservative Republicans recoiled at the prospect of federal intervention into private capital markets.
Bernanke and Paulson will testify before the House today.
The Securities and Exchange Commission's ban on short-selling to prevent speculation should be followed by similar actions in the oil market, where speculative trading is rife, some traders say, according to Ben Liechtenstein, president at Tradersaudio.com.
"Why are we accepting long positions in crude oil and not expecting delivery?" Liechtenstein told "Worldwide Exchange."
Crude prices gained more than $2 to move past $109 a barrel.
Crude-oil inventories are due out at 10:35 a.m. ET.
On the home front: Mortgage applications fell 10.6 percent last week as a short-term drop in interest rates wore off, and existing-home sales fell 2.2 percent, roughly in-line with forecasts, in August after a July jump.
Homebuilder stocks were mixed, with Hovnanian and Toll Brothers lower, and Lennar and KBHomes higher.
Asian stocks closed mixed with fears over the fate of the U.S. bailout package still running high, while European stocks rose, helped by EDF's agreed bid for British Energy and the Warren Buffett news.
STILL TO COME:
WEDNESDAY: Bank Reserve Settlement; Fed's Bernanke and Lacker speak; weekly mortgage applications; existing-home sales; weekly oil inventories; Earnings from Bed, Bath & Beyond and Nike
THURSDAY: Paulson testifies; Chicago, Dallas Fed presidents speak; jobless claims; durable goods; new home sales; natural-gas inventories; Kansas City Fed manuf. report; Earnings from Discover, Rite Aid and Research In Motion
FRIDAY: St. Louis Fed pres. speaks; Last look at Q2 GDP, corporate profits; consumer sentiment; Earnings from KBHome
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