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Stocks Rally After GE Chief Says They Can Withstand Loan Defaults

US Session Key Developments

  • General Electric Can Withstand Loan Defaults
  • Housing Data Surprises to the Upside
  • Alcoa Slashes Dividend 82% to 3 Cents Per Share

Stocks Rally After GE Chief Says They Can Withstand Loan Defaults

Wall Street celebrated St. Patrick today by finishing the trading session deep in the green after General Electric’s Chief Executive Officer Jeffrey Immelt stated that the company had sufficient reserves to withstand loan defaults. The comments come as a relief after the conglomerate slashed its dividend three weeks ago for the first time since the Great Depression. Surprising Housing and Producer Price data surprised to the upside, leaving traders in an upbeat mood. The prices that manufacturers pay for raw materials rose 0.2% when excluding food and energy with economists expecting the figure to rise by only 0.1%. With these costs now higher, taxable income deteriorates, which in turn allows companies to be more profitable. Sentiment continued its upward trend after housing starts unexpectedly rose 22% in February. As such, KB Home, the fourth-largest U.S. homebuilder advanced 9.3% along with Home Depot, which rose 6.7%. The blue chips could have performed a bit stronger had it not been for an 82% dividend slash from Alcoa, the largest U.S. aluminum maker and a member of the Dow 30, which brought its quarterly cash payout to only 3 cents per share. Nonetheless broader optimism led Financials to perform the strongest. JPMorgan, Wells Fargo, and Citigroup all moved ahead by more than 7.0%.


Dow 30            7395.70         +178.73           +2.48%

The Dow fell in the minutes after opening bell only to rally from thereon. It closed near the day’s high with only one sector finishing the day down, Materials. The sector’s performance is not of particular surprise considering Alcoa’s stock tanked 8.66% after it slashed its dividend by 82% to 3 cents per share.

NASDAQ         1462.11           +58.09              +4.14%
NASDAQ stocks performed the strongest with Information Technology rallying 4.25%. Apple rallied 4.44% after it had let developers preview a beta of the iPhone OS 3.0, which includes cut and paste features and automatic updates.

S&P 500          778.12            +24.23              +3.21%

S&P 500 stocks saw every sector in the index rally by at least 1.74% with Financials surging 6.58%. General Electric was one of the most active stocks, trading 22.74 million shares after its CEO announced that it had adequate capital reserves to withstand loan defaults. The VIX fear gauge couldn’t find enough momentum to fall below the 40 mark; nonetheless it dropped 6.7% to 40.80. Overall, 476 stocks rose with only 24 finishing the day down.

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Banking Shares Surge on FDIC Power Expansion

US Session Key Developments

  • Bernanke, Geithner Ask Congress to Ease FDIC Borrowing Limits
  • Bank of America, Wells Fargo Surge Over 15.80%

Banking Shares Surge on FDIC Power Expansion

Banking shares jumped today despite an overall down day after Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner asked Congress to expand the Federal Deposit Insurance Corp.’s borrowing power. Last week, FDIC head Sheila Bair announced that the consumer bank insurer would possibly run out of funds, sending financials tumbling down. The requested legal authority would allow the FDIC to borrow as much as $100 billion from the Treasury, up from $30 billion as of February. Banks as a sector surged ahead by 10.72%. Bank of America and Wells Fargo were two of the greatest beneficiaries of the positive sentiment as the stocks rallied $0.61 or 19.43% and $1.36 or 15.80%, respectively. Warren Buffet also stated that in 3 years the San Francisco based Wells Fargo will have prospects “better than ever.”

Dow 30                6547.05                 -79.89                    -1.21 %
The Dow had a mixed day with four sectors actually finishing the day in the green. Financials jumped 3.23% with Bank of America leading the pact. Health Care and Telecommunication Services tumbled nearly -4.0% each as risk appetite saw money shifting over to the riskier, banking, stocks.

NASDAQ              1268.64                  -25.21                     -1.95%
The NASDAQ saw every sector in the index sell off today. Information Technology was the hardest hit, finishing down -2.39%.

S&P 500                676.53                   -6.85                       -1.00%
The S&P 500 also saw a mixed day with Financials and Energy being the only two sectors to finish the day ahead. The VIX volatility index rose slightly, by 0.35 points to finish at 49.68.

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Obama Unveils Mortgage Plan, But Is That Good For The Market?

Equity markets rallied in the U.S. and Europe and many are hailing President Obama’s mortgage plan as the reason for this bounce. But this may be quite a fallacy. European markets rallied overnight before the plan was even unveiled. Much of this may have been due to new expectations that Chinese Premier Wen Jiabao is scheduled to add to the 4 trillion Yuan ($585 billion) stimulus package that had been announced last October.

President Obama released his long-awaited mortgage plan only to see banking stocks plummet by -6.59%. This could have been because of the details the laid within the text of the document itself. It was revealed that only those whose home-loans are owned by either Fannie Mae or Freddie Mac would be eligible to receive help. However, there are many other banks that own substantial a substantial portion of the mortgage market that will not benefit from the bailout. Indeed, Wells Fargo led the slide with its 16% market share of mortgages outstanding.

As such, today’s rally may only be temporary. Equities might continue seeing volatility. Currencies that are vehicles for risk-aversion may continue rallying.

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