If you were holding your breath for a big Warren Buffett-inspired rally today, now is probably a good time to exhale.
Stocks made a modest advance at the open but gains quickly fizzled as the House hearings on the government's $700-billion bailout resumed. (Watch the live-streaming video of the hearings on CNBC.)
Traders seemed conflicted: Enthused about Buffett's vote of confidence in financials but worried about whether political wrangling will derail the bailout.
Stocks got an afternoon pick-me-up during a break in the hearings as investors rummaged around and found some optimism that a bailout would boost tech spending. Rumors that a cap on executive pay could be added as a condition for passing the bailout plan also spurred some buying.
Financials benefitted from the Buffett news, with Bank of America and JPMorgan among the biggest gainers on the Dow. (Track the Dow winners & losers.)
Among technology stocks, Oracle , Apple and Dell were all up more than 2 percent.
Goldman Sachs shares jumped more than 5 percent. 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. An SMFG spokesman said he couldn't confirm the Kyodo report.
Shares of Wachovia Bank rose after reports that merger talks with Morgan Stanley have ended. Morgan Stanley shares skidded.
Several market pros gave a thumbs-up to financials.
Commercial banks are not the problem, Ladenburg Thalmann's Richard Bove told CNBC. What we’ve seen fail, Bove said, are investment banks, home-financing companies and an insurance company – not a major bank. That’s because banks are funded by deposits and their investments are diversified.
(Time to buy banks? Click on the video at left.)
Plus, look at the numbers: We’ve seen a number of smaller banks including Wells Fargo and PNC Financial hit all-time highs recently, Bove said.
Going forward, “What you're looking at is a commercial-bank system and you gotta be buying commercial-bank stocks,” Bove advised.
Jack Bouroudjian of Capital Markets Technology agrees – he’s been pro-financials for a couple of weeks now. “Transactional banking is where you want to be,” Bouroudjian said, offering Bank of America as an example. “We’ll be be looking back on [BAC] and saying they made all the right decisions at the right time.”
Bouroudjian also likes the exchanges like CME Group because banks will need leverage and that’s where they’ll start to look, he said.
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. In Wednesday's testimony, he reiterated the urgency of getting a plan passed now, before Congress recesses,
Paulson will testify before the House panel shortly.
The pair's proposal has received an icy reception on Capitol Hill as both parties have demanded changes in the White House-backed proposal and conservative Republicans have recoiled at the prospect of federal intervention into private capital markets.
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 were up about $1 a barrel, trading above $107, after the EIA reported that crude supplies declined by 1.5 million barrels last week. Earlier, oil was up more than $2 a barrel.
On the home front: Mortgage applications fell 10.6 percentlast 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: Fed's Lacker speaks; 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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