The best stock market day in 75 years will no doubt be followed by a less enthusiastic Tuesday session. But the good news is the international effort to thaw the credit freeze may have finally given the markets at least a temporary jolt of confidence.
The big event for markets Tuesday is the same thing that fired up a 936-point Dow rally Monday. That was the anticipation the government would announce a sweeping plan to crack the credit freeze, with the injection of capital into the nation's biggest banks, guarantees on interbank lending and expanded FDIC coverage.
President Bush comments at 8:05 a.m. Tuesday after a 7:30 a.m. meeting with his working group on markets. Treasury Secretary Hank Paulson, Fed Chairman Ben Bernanke, FDIC Chairman Sheila Bair and other officials were to hold a briefing at 8:30 a.m. on the plan, which mimics in many ways a bank rescue initiated by the British last week.
CNBC's Steve Liesman reports the government will first inject capital into nine institutions in exchange for preferred stakes in the banks. It plans to use $250 billion of the $700 billion bailout fund for capital injections.
With global central bankers top of mind these days, investors will be watching comments from European Central Bank President Jean Claude Trichet, who speaks to the Economic Club of New York at 12:15 p.m. ET.
"The good thing is with the global credit crunch, they're attacking it. We think there's a thaw coming, and it will subside," said Gerard Cassidy, banking analyst with RBC Capital Markets.
Stocks raced higher as news of the U.S. plan spilled out. The Dow's 11 percent gain to 9387 was its biggest one day percent gain since March, 1933. The S&P was up 104 points, or 12 percent to 1003, and Nasdaq jumped 194 points, or 12 percent to 1844.
"I think it would be healthy to lose some of it (gains) tomorrow. We can't go up in a straight line, just like it wasn't healthy to go down in a straight line," said Tim Smalls of Execution LLC.
Dow "9,000 is more realistic than 7,000 but I think this is a little too quick, too soon," said Smalls. Traders expect Tuesday to be another volatile day with the likelihood of another triple digit Dow move.
The bond market was closed for Columbus Day Monday. The dollar fell 1.4 percent against the euro to a level of $1.3599 per euro. Oil gained $3.49 per barrel, or 4.5 percent to $81.19.
"We're Doing Fine"
That's what J.P. Morgan CEO Jamie Dimon said to CNBC's camera as he left the Monday afternoon meeting Treasury Secretary Hank Paulson called with the nation's biggest banks. But that might not have been the case for some of the others in the room, and it was an odd turn of events to see the nation's most powerful bankers called into Treasury to learn about the new financial world order, like a group of punished school boys.
Dimon's J.P. Morgan will receive capital from the Treasury, as will Citibank, Wells Fargo and Bank of America. Morgan Stanley, Merrill Lynch and Goldman Sachs were also receiving injections.
Cassidy said he has been cautious about the bank stocks ahead of details of the plan because of what it may mean to common shareholders. He notes that other government rescue plans all disadvantaged the common shareholders more than preferred and debt holders. On Monday, financial stocks rallied more than 10 percent.
"We have to be careful until we see the details of the plan. How are they going to buy equity," he said. In the U.K., "they eliminated the common dividend, the ceo got canned, and they got board seats."
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"We've got to be careful what we wish for," he said.
Despite the government rescue operation, Cassidy said he still expects a big number of bank failures ahead. He currently estimates about 300 will fail before this cycle is over. But he said many of those will be small, privately held community banks.
"We still believe the commercial banks in the United States are going to run into serious credit problems in the next 12 months, and at some point in the next three months or four months investors are going to have to make the dive into a basket of troubled banks. We think at that point, from history, bank stocks will bottom before credit problems peak," he said. He said the peak will be next summer into the fall.
"What we haven't seen is a traditional credit cycle yet. A traditional credit cycle is going to lead to a higher charge off in commercial loans, commercial real estate loans, auto loans and credit cards," he said.
Some major banks report earnings this week, including Wells Fargo and J.P. Morgan report Wednesday, and Citigroup, PNC, Merrill Lynch and Bank of New York Mellon report Thursday. Cassidy said the theme will be bigger credit issues and lower earnings.
The earnings season gets more active Tuesday with reports from Johnson and Johnson and PepsiCo before the bell. Genentech and Intel report after the bell, as does CSX.
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