Wall Street's wild ride promises to continue as Congress wrangles over details of a financial markets bailout, and investors assess the government-brokered deal for Washington Mutual.
JPMorganChase stepped in to acquire Washington Mutual's deposits, branches, and other assets for $1.9 billion after the FDIC seized it, sources tell CNBC's David Faber.
Troubled Washington Mutual, the biggest U.S. thrift, was rumored all day Thursday to have been floundering and out of options in its quest for a buyer.
Washington Mutual stock holders and debt holders were wiped out in the deal, but branches will be able to open for business as usual Friday, reports Faber.
On Friday, investors will be watching the fallout from this deal, which leaked out ahead of a 9:15 p.m. ET JPMorgan conference call Thursday.
There's little data to watch Friday, but the final second quarter GDP is released at 8:30 a.m. and consumer sentiment is reported at 10 a.m.
Credit markets continued to show serious signs of stress Thursday but were slightly less severe than Wednesday. Selling in the two-year Treasury pushed its yield higher, to 2.169 percent, and T-bill yields rose from Wednesday's ultra-depressed levels as the intense buying calmed. But Libor/OIS spreads were at record highs and spreads in general remain near records. The big fear in credit markets is that the government bailout may not work.
Stocks though moved higher on optimism Congress was near agreement on a plan but that seemed to unravel later Thursday. The Dow rose 196 or 1.8 percent to 11,022 while the S&P 500 was up 23 points, or 2 percent, at 1209.
The $700 billion rescue of the financial system is expected to be adopted in some form or other but markets will be nervous until it looks like a deal will be struck. Traders have been watching every step of the process because it will impact the very structure of Wall Street as it strips toxic debt from the books of financial firms. Some additions to the Treasury plan being discussed on Capital Hill include caps on the compensation for CEOs and the potential equity ownership in financial companies by the government.
In the meantime, the stock market has been seeing sharp swings higher and lower this week. Birinyi Associates president Laszlo Birinyi said the volatility in stocks is not surprising.
"I think it just reflects the uncertainty and the fact that we're hoping and we're scared at the same time, depending on which day. It reflects the fact that the market today has more people with a short-term investment orientation," he said.
Birinyi said the temporary ban on short selling has also resulted in increased volatility in some stocks included on the list. "Every measure of volatility we've ever known has had a significant increase," he said. But for some stocks that were included in the short sale ban, intraday volatility has become extreme.
I asked Birinyi whether the intense triple digit swings in the Dow mean anything for stocks going forward (like a bottom forming). He said not necessarily. "We are kind of reminiscent to the end of 2002. We made a bottom. We struggled and went back and forth before we went significantly higher. My view is we're groping for a bottom."
Minus another negative event, "I don't think we're likely to go much lower. I think the worst is behind us," he said. Birinyi pointed out the action in General Electric , the parent of CNBC. The company issued an earnings warning, but it's stock moved higher. "I think the action is very positive," he said. "... It's the fact that people are really looking forward."
Energy moved higher, but other commodities mostly moved lower Thursday. Oil gained $2.29 per barrel, or 2.2 percent to $108.02 per barrel. The dollar fell 0.04 percent against the euro.
"The tightness in the gasoline market is pushing oil up," said John Kilduff, senior vice president at M.F. Global.
"I guess it's (oil) at the upper end of the trading range. That's my feeling," said Kilduff, a CNBC contributor. He said the oil market should start responding to concerns about the U.S. economy once the bailout package is adopted. "The economy is going to weigh on things globally too," he said.
Duke Energy CEO James Rogers told CNBC's Maria Bartiromo that he is seeing residential customers cut back on electricity use, meaning they pared back their air conditioning and other use this summer.
"The Main Street economy has been very resilient in the last three to five years. This melt down on Wall Street is starting to infect Main Street and that's why action today is so critical by Congress," he said on "Closing Bell" Thursday.
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