Stocks Rally as Investors Cheer Citigroup Rescue
Stocks rallied Monday, boosted by an in-line home-sales report and news that the government has agreed to backstop troubled bank Citigroup.
The Dow Jones Industrial Average was up about 300 points, adding to Friday's nearly 500-point gain. The Nasdaqand S&P 500 index also extended their gains.
Citigroup shares jumped 60 percent, trading around $6 a share, following last week's severe battering. The government agreed to guarantee over $300 billion of Citi's troubled assets and pump $20 billion from the Troubled Asset Relief Program (TARP) into the bank, in exchange for preferred shares with an 8 percent dividend.
Analysts were divided on whether the Citi bailout was the right move from the government.
"The Citigroup bailout is still a halfway measure," investor Barton Biggs, managing partner of Traxis Partners, said on CNBC. "The banks aren't going to start lending again until the bad loans are off their balance sheets. This doesn't do it."
The news juiced the banking sector: Morgan Stanley Merrill Lynch and Bank of America were up more than 10 percent.
Existing-home sales fell 3.1 percent to an annual rate of 4.98 million units in October from a downwardly revised 5.14 million pace in September. That was roughly in-line with the 5.05 million rate economists had expected.
Meanwhile, President-elect Barack Obama is expected to name his economic team, which added to the positive sentiment this morning.
New York Federal Reserve President Timothy Geithner is expected to be named Treasury secretary, while former Treasury Secretary Lawrence Summers is expected to be tapped to direct the National Economic Council, transition officials said. Christina Romer, a professor at the University of California, Berkeley, is expected to be named head of the White House Council of Economic Advisers. New Mexico Governor Bill Richardson is expected to be named Secretary of Commerce.
News of Obama's team helped the Dow Jones Industrial Average close above the psychologically important 8,000 level on Friday, having sunk below it earlier in the week.
On the earnings front, Campbell Soup beat expectations amid strong sales of condensed soups, which are more profitable for the company than ready-to-eat soups. But Campbell shares declined as the company delivered a disappointing full-year outlook.
Xerox shares jumped after the company issued an outlook in-line with forecasts.
The world's biggest brewer, Anheuser-Busch Inbevlaunched a deeply discounted rights issue to help fund the purchase of the Bud beer maker by the Belgian company.