Stocks staged a comeback in the final hour of trading Thursday following news that the Obama administration is mulling a new plan to subsidize mortgage paymentsfor homeowners in jeopardy.
In other words, the market finally got what Treasury Secretary Geithner failed to deliver: Details.
The Dow Jones Industrial Average shed just 6.77 to close at 7,932.76, after being down more than 200 points earlier in the session as investors worried that the $789 billion stimulus bill working its way through Congress may not be enough to help the economy.
The first rise in retail sales in seven months had buoyed futures but traders shrugged it off from the first minute of regular trading. The Dow touched down below 7,800 intraday, a level it hasn't seen since Nov. 21.
Even at its worst, though, the market remained a comfortable distance from the November low, which was down around 7,500 for the Dow.
Details were just beginning to trickle out about this new government mortgage-subsidy program. The idea is that the government wants to try to catch homeowners in jeopardy before they become delinquent on their mortgage or lose their home. Homeowners who clear a standardized re-appraisal and affordability test would then renegotiate their mortgage with their bank and the government would pitch in some money out of that $50 billion Geithner mentioned would be devoted to help stem home foreclosures.
The market got a mild bounce Wednesday from news that the Senate had agreed on a stimulus plan but Wall Street on Thursday sent a clear signal that it wasn't sure the plan would jump-start the economy and it didn't like how vague the plan outlined by Treasury Secretary Tim Geithner was.
The problem with the stimulus plan is that it's only 64 percent stimulus, Peter Cohan, president of Peter S. Cohan & Associates, wrote in a note to clients.
"Tax cuts don't stimulate, people save them," Cohan said.
"The big unknown is whether this plan will restart economy activity so the economy can function on its own after all the plan's money has been spent," he said.
Financials including Bank of America, Citigroup , American Express and JPMorgan were the biggest drag on the Dow for most of the day as this so-called "stress test" for banks stressed out investors but finished off their lows.
By the close, the bottom three were Bank of America, General Motors and 3M .
After U.S. bank bailouts had disastrous effects for shareholders, shareholders of Belgian bank Fortis staged a rare revolt against the government's bailout plans, rejecting the proposed $20 billion sale of the bank to France's BNP Paribas. Fortis, which was taken over by the government in October, is widely held by Belgian citizens, the Wall Street Journal reported this morning.
In the U.S., the Senate and House are expected to vote on the $789 billion stimulus billthis week, putting it on President Obama's desk as early as Monday.
Homebuilder stocks regained a little ground, but still ended mostly lower as investors were disappointed that the new home-buyer tax credit originally proposed in the stimulus bill was slashed to $7,500 from $15,000. Hovnanian and Beazer ended off about 10 percent, while Lennar was off just 5 percent.
Likewise, General Motors and Ford skidded more than 3 percent as incentives for buying a new car were also clipped in the final bill.
In economic news, retail sales rose 1 percentin January amid a jump in gasoline sales; economists had expected a decline. Meanwhile, initial jobless claims fell by 8,000last week. Home prices tumbled a record 12.4 percentin the fourth quarter to their lowest level since 2003 as foreclosures and other distressed sales accounted for nearly half of all transactions. And the average rate on a 30-year fixed mortgage fell to 5.16 percent this week.
The Nasdaq managed to finish in positive territory amid gains in some big-cap techs, including Apple and National Semiconductor , as investors looked to the beaten-down sector for investment opportunity.
In earnings, Viacom , the owner of MTV and Paramount movie studio, reported its profit dropped to 28 cents a sharefrom 86 cents a share a year earlier as the media giant grappled with an advertising slump, weak ratings at some key networks and slowing DVD sales.
Coca-Cola was a beacon on the Dow throughout the day — at one point it was the only gainer on the Dow — after the cola maker beat earnings expectations, helped by strong sales in China, India and Eastern Europe.
Three restaurants also topped forecasts, including Chipotle Mexican Grill , Buffalo Wild Wings and PF Chang's .
Crude oil continued to slide, settling at $33.98 a barrel. Gold hit $950 and some market pros said its on its way back to $1,000 as as investors piled into the commodity, which one market pro called a "crisis hedge."
Markets in Europe declined as banks there also took a hit from worries about the U.S. stimulus. Earnings also weighed on markets there as big-name companies continued to report losses. And Spain became the latest country to officially enter a recession. In Asia, stocks sank with Tokyo dropping 3 percent.
Still to Come:
FRIDAY: G7 finance ministers meet in Rome; Consumer sentiment; Earnings from Pepsi
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