Stocks rebounded off of 12-year lows Wednesday after the Obama administration launched its mortgage-rescue plan to help millions of struggling homeowners stay in their homes.
The market shrugged off a bleak beige-book report and the drag of General Electric and barreled higher in afternoon trading.
The Dow Jones Industrial Average was up more than 150 points, creeping up on the 6,900 mark. Stocks had started the day at 12-year lows after the selloff of the past two sessions that sent the Dow firmly below 7,000.
General Electric was the biggest drag on the Dow, with shares losing more than 10 percent and falling briefly below $6 amid forced selling by sovereign-wealth funds. It would be critical if the stock hit $5 — many funds are prohibited from owning stock that trades below $5, though there are other factors that can pre-empt an automatic sale.
The concern centers around GE Capital, which saw its credit-default swaps hit a record 20 percentupfront. GE said this morning that claims that the company will need to raise more capital near term are "inaccurate."
Economic conditions grew worse in January and Februaryand businesses don't expect any improvement until late this year or 2010, the Federal Reserve reported in its beige-book report, a regional spot check of how the economy is doing.
"National economic conditions deteriorated further,'' the Fed said in its Beige Book summary gathered from districts around the country. "The deterioration was broad based,'' the Fed added.
The market loves details and the government backed up the rescue truck and unloaded a giant heap of details about the mortgage-rescue plan just before the opening bell: Servicers can immediately begin modifying mortgages to reduce monthly payments, loans originated before Jan. 1, 2009 qualify, single-family homes with unpaid principal/balances up to $729,750 are eligible and the home must be occupied by the owner. The first step is to reduce the interest rate, which is subject to a floor of 2%, and if necessary, the term could be extended to a maximum of 40 years and the potentially the principal could be reduced.
Financial stocks were mixed.
Bank of America rose, while Citigroup and JPMorgan fell.
Shares of UBS gained as new Chairman Kaspar Villiger prepares to take over for Peter Kurer.
UBS executive Mark Branson faces questioning from a Senate panel for the first time since the Swiss bank took responsibility for helping US clients hide assets from the government. The Swiss banking sector, famed for its secrecy, will be closely watching proceedings.
Hopes for a turnaround in the stock market received numerous body blows this week as the Dow Jones Industrial Average and S&P 500 slumped below critical support levels.
But one person talking up the battered market was President Barack Obama, who said “buying stocks is a potentially good deal if you’ve got a long-term perspective on it,” at a press conference Tuesday.
Treasury Secretary Tim Geithner will speak at a Senate Finance Committee at 10 am New York time. This comes after both the Treasury Secretary and Federal Reserve Chairman Ben Bernanke appeared before Congress on Tuesday.
Investors will be looking for clear direction from Geithner on the ongoing economic crisis.
And beleaguered automaker General Motorscould have a potential buyer for its Saab brand, sources told Reuters. China's Geely Automobile and Dongfeng Motor Group have both shown an interest in the asset, the report said.
On the earnings front, Costco Wholesale reported its quarterly profit tumbled 27 percent, missing analysts' target, as price cuts crimped margins.
BJ's Wholesale beat expectationsand delivered a solid outlook.
Toll Brothers also topped forecasts with its quarterly results and said it expects to deliver between 2,000 and 3,000 homes for 2009.
On the economic front, mortgage applications fell for a second straight weeklast week, the Mortgage Bankers Association reported earlier.
And the service sector contractedagain in February. The ISM services index came in on target at 41.6 for February, compared with a downwardly revised 42.9 for January.
Meanwhile, private employers slashed 697,000 jobsfrom payrolls in February, accelerating job cuts from January's 614,000 pace, ADP reported.
Investors closely watch the gauge as a precursor to the government's jobs report, due out on Friday. Analysts expect to hear that 640,000 jobs were slashed from payrolls last month.
Still to come: Federal Reserve’s Beige Book will be released at 2 pm ET.
WEDNESDAY: Fed's beige book; Earnings from BJ's, Costco and Toll Bros.; Geithner testifies before Senate panel; UK prime minister addresses joint session of Congress
THURSDAY: Chain-store sales; European rate decisions; weekly jobless claims; factory orders; Senate hearing on AIG
FRIDAY: Jobs report; consumer credit
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