New York: US stocks rose on Wednesday, capping the S&P 500’s longest winning streak since November, as financial stocks soared on optimism the Obama administration was making progress on a plan to relieve banks of money-losing assets.
Stocks initially added gains following the Federal Reserve’s statement that it is prepared to buy long-term US government debt, but the boost faded upon the realization that the Fed’s purchases won’t be made any time soon.
Financial stocks stood out, with JPMorgan among the Dow’s top advancers with a gain of 10.4%. Bank of America climbed nearly 14%, while Citigroup shot up more than 18%.
The S&P financial index rose 13% on reports that plans were advancing to create a “bad bank” that would mop up assets whose worth has plummeted, and in turn help revive lending to consumers and businesses.
“What moved the market earlier in the day is the bad bank concept gaining more acceptance,” said Eric Kuby, chief investment officer at NorthStar Investment Management Corp in Chicago. “I don’t think there are any big shockers from the Fed’s statement.”
The Dow Jones industrial average finished up 200.72 points, or 2.46%, at 8,375.45. The Standard & Poor’s 500 Index climbed 28.38 points, or 3.36%, to 874.09. The Nasdaq Composite Index ended up 53.44 points, or 3.55%, at 1,558.34.
Starbuck loses froth
But after the bell, companies including Starbucks Corp coaxed investors back down to earth with a reality check. The coffee chain missed profit estimates, sending its stock down more than 2% to $9.40 after hours.
In other news after the market’s close, cell-phone chip maker Qualcomm Inc cut its fiscal 2009 revenue outlook and Allstate Corp, the largest publicly traded US home and auto insurer, reported a $1.1 billion quarterly loss. Qualcomm’s stock lost 2.6% to $35.88 in extended-hours trading, while Allstate’s shares plunged 11% to $26.35 after hours.
When trading resumes on Thursday, investors are also likely to focus on the US House of Representatives’ approval late Wednesday of an $825 billion economic stimulus bill. The House voted 244 to 188 to pass the bill containing President Barack Obama’s program for emergency spending and tax cuts. The measure next goes to the US Senate for debate, starting probably sometime next week.
With Wednesday’s advance, the benchmark S&P 500 capped its fourth straight day of gains, its longest run-up in two months.
Worries about the financial sector’s health have been the biggest hurdle for the market, fueling unease about stocks’ performance in January, which is traditionally seen as a guide to the year’s prospects.
On recent bets that the government will save the day, the indexes have swiftly erased most of their year-to-date losses.
Year to date, the benchmark S&P 500 is now down 3.2%, a marked improvement from a 6.4% loss seen at Tuesday’s close. After starting 2009 up more than 20% from its 21 November bear market low, the S&P is up 16.2% from that significant low.