Stocks Jump, Then Slide Back, After Auto Bailout

A huge bailout for Detroit was barely able to budge Wall Street on Friday.

Stock markets surged in early trading after President Bush announced plans to extend $13.4 billion in emergency loans to the troubled automakers General Motors and Chrysler. But Wall Street’s reaction cooled, the morning’s early gains eroded, and markets ended mixed.

The Dow Jones industrial average fell 25.88 points, or 0.3 percent, to 8,579.11. The Standard & Poor’s 500-stock index gained 2.60 points, or 0.29 percent, to close at 887.88. The Nasdaq gained 11.95 points, or 0.77 percent, to 1,564.32.

It was a middling end to a roller coaster week on Wall Street. Stocks rose 5 percent in a midweek rally after the Federal Reserve cut interest rates to record lows of zero to 0.25 percent, but gave back most of their gains and closed flat for the week.

But some analysts found signs of recovery in Wall Street’s indifference. Despite quarterly losses at Goldman Sachs and Morgan Stanley and another round of dour economic data that presaged a broad and lasting downturn, stock markets did not fall into a tailspin this week.

“Right now, all else equal, stocks want to go up,” said Douglas M. Peta, an independent investment strategist. “They’re not going down on bad news anymore, and I think that does show there’s been a change in sentiment. I don’t know how long that’s going to hold. We still have plenty of fundamental challenges to go through.”

A two-month rally in the price of government debt, which drove yields to record lows, abated slightly on Friday as credit markets continued to show signs of healing. The Treasury’s benchmark 10-year note fell 14/32, to 114 14/32, and the yield, which moves in the opposite direction from the price, was 2.12 percent, up from 2.08 percent late Thursday.

Crude oil prices fell for another day on Friday amid signs that stockpiles were increasing while global consumption slipped as people drove less and construction projects halted. Oil futures settled at 33.87 a barrel, down more than 75 percent from their peak of $145 a barrel in July. The energy sector was the worst performer on Friday, and oil companies like Exxon, Chevron and BP all closed lower on falling oil prices.

Shares of G.M., which have plunged by more than 80 percent this year as sales screeched to a halt and huge operating costs and legacy obligations drained cash, rebounded by 23 percent on news of the auto bailout. The Ford Motor Company gained 4 percent, although Ford said it was not taking the emergency government loans. Chrysler is not publicly traded.

In a statement before the markets opened, Mr. Bush said the government would be providing $13.4 billion in emergency loans to G.M. and Chrysler, with the possibility of another $4 billion in February. He said that an “orderly bankruptcy” – an idea floated by the White House on Thursday – was not possible, but said the automakers needed to undergo a major overhaul to become viable.

This fall, chief executives of Ford, Chrysler and G.M. made two trips to Congress to plead for a government rescue using money from the $700 billion bailout for financial companies. After the Senate refused to act on a plan, the White House stepped in.

While the government loan will probably keep the lights on at Chrysler and G.M. and prevent an imminent bankruptcy, analysts said it was too soon to say whether the companies would be able to become self-sustaining, or whether they would need to petition the Obama administration for more assistance if the economy languishes in a recession throughout 2009.

“Wouldn’t it be wonderful if it turned out to be enough,” said Dana Johnson, chief economist at Comerica Bank, who follows the auto industry. “But you have to think that that’s not the likeliest scenario.”

Standard & Poor’s cut its credit ratings on 11 American and European financial institutions on Friday, reflecting concerns about their balance sheets and their future prospects amid stormy credit markets. Despite the downgrade, shares of the companies, which include JPMorgan Chase, Goldman Sachs, Bank of America and Wells Fargo, ended mixed.

Citigroup fell farther than most banks, by 5 percent, after its banking subsidiary, Citibank, received rate cuts from both Standard & Poor’s and Moody’s. Moody’s also cut Citigroup’s credit by two notches.

“The agencies appear to have zapped away at least some of the holiday spirit that is already rather subdued,” the research firm CreditSights wrote in a note.

Published: December 19, 2008

Source: The New York Times

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