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Late stock rally ahead of Goldman settlement news
Source: Agencies |
July 16, 2010, Friday
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STOCKS had a late-day turnaround and closed mixed yesterday as traders awaited news that Goldman Sachs settled the government's civil fraud charges.
As word spread that the Securities and Exchange Commission had scheduled a late-afternoon announcement, investors began buying on the belief that the government and Goldman Sachs Group Inc. had settled the charges that grew out of the sale of securities based on risky mortgages.
The US$550 million settlement was announced less than an hour after trading ended. Goldman agreed to pay fines of US$300 million, the largest fine against a financial company in SEC history, and US$250 million to compensate investors who lost money on the securities. The deal also requires Goldman to review how it sells complex financial mortgage investments.
Anticipation of the settlement, which removes uncertainty that has hovered around Goldman since the charges were announced April 16, was enough to make traders temporarily set aside concerns about the economy. A series of disappointing economic reports had sent the Dow Jones industrials down nearly 100 points in late trading. The Dow scrambled back to a loss of just 7 by the close. Broader indexes were narrowly mixed.
Goldman was trading at about US$140 a share when word of the pending announcement came. The stock then soared to close at US$145.22, up US$6.16, and shot up to US$151.26 in after-hours trading.
John Merrill, chief investment officer of Tanglewood Wealth Management in Houston, said before the announcement that a settlement would come as a relief. The case "hangs over the investment banks and the financial community in general," he said.
A little more uncertainty was lifted from the market late in the day, when the Senate passed and sent to President Barack Obama the financial regulation bill. However, because regulations that will implement the bill's provisions have yet to be written, traders were still wary. Analysts said that likely contributed to the market's dip right before word of an SEC announcement.
"Another step toward financial regulation may have sparked some fear" and selling, said Todd Salamone, senior vice president of research at Schaeffer's Investment Service.
Bill Strazzullo, partner and chief market strategist for Bell Curve Trading in Boston, noted that JPMorgan Chase & Co. CEO Jamie Dimon earlier in the day said it wasn't possible to estimate the impact of the bill on his company's profits.
"Maybe the reality of it is finally upon us," he said.
The Dow fell 7.41, or 0.07 percent, to 10,359.31. The Standard & Poor's 500 index rose 1.31, or 0.1 percent, to 1,096.48, while the Nasdaq composite index fell 0.76, or 0.03 percent, to 2,249.08.
Losing stocks were slightly ahead of gainers on the New York Stock Exchange, where volume came to 1.1 billion shares.
Bond prices rose as investors worried about the economy sought safety the safety of government securities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.99 percent from 3.05 percent late Wednesday.
For much of the day, the market was down on pessimism about weak economic reports - a problem that will continue to dog the market. A day after the Federal Reserve issued a slightly more bleak outlook on the economy, steep drops reported in the Empire State and Philadelphia Fed Manufacturing indexes pointed to a slowing in manufacturing activity in the Northeast. Meanwhile, the Fed reported modest growth in industrial output nationwide. And the Labor Department said first-time claims for unemployment benefits fell last week, but that was largely due to seasonal factors.
"We've hit a soft spot," Howard Ward, chief investment officer at GAMCO Growth Fund, said of the economic recovery. "The question is, are we starting to already improve or are we still falling down."
The disappointing manufacturing reports, which followed a weeklong stock rally, made the market "susceptible to profit taking" after the market's week-long advance, Ward said.
There appeared to be a shift in investors' view of the economy. They had been upbeat over the past week on more positive economic signs, in particular forecasts from companies including Intel Corp. and Alcoa Inc. But the latest disappointing numbers now seem to be dictating investors' moves, and analysts questioned whether investors would start buying again if companies keep reporting strong earnings and outlooks.
JPMorgan Chase, the first big bank to report its second-quarter earnings, said it had set aside less money to cover losses on failed loans. That is a sign that mortgage and loan defaults may be moderating. But Dimon kept a cautious tone about future economic growth.
"Earnings are strong," said Sandy Mehta, principal and chief investment officer of Value Investment Principals. "But the underlying economy is not as strong."
JPMorgan Chase rose 11 cents to US$40.46. Several other big banks fell. Bank of America Corp. dropped 28 cents to US$15.39 and Citigroup Inc. fell 5 cents to US$4.16. Both companies report earnings on Tuesday.
Caterpillar Inc. fell 19 cents to US$66.51 on the downbeat manufacturing reports.
The euro climbed above US$1.28 for the first time in more than two months yesterday as investors worried about the strength in the U.S.
As word spread that the Securities and Exchange Commission had scheduled a late-afternoon announcement, investors began buying on the belief that the government and Goldman Sachs Group Inc. had settled the charges that grew out of the sale of securities based on risky mortgages.
The US$550 million settlement was announced less than an hour after trading ended. Goldman agreed to pay fines of US$300 million, the largest fine against a financial company in SEC history, and US$250 million to compensate investors who lost money on the securities. The deal also requires Goldman to review how it sells complex financial mortgage investments.
Anticipation of the settlement, which removes uncertainty that has hovered around Goldman since the charges were announced April 16, was enough to make traders temporarily set aside concerns about the economy. A series of disappointing economic reports had sent the Dow Jones industrials down nearly 100 points in late trading. The Dow scrambled back to a loss of just 7 by the close. Broader indexes were narrowly mixed.
Goldman was trading at about US$140 a share when word of the pending announcement came. The stock then soared to close at US$145.22, up US$6.16, and shot up to US$151.26 in after-hours trading.
John Merrill, chief investment officer of Tanglewood Wealth Management in Houston, said before the announcement that a settlement would come as a relief. The case "hangs over the investment banks and the financial community in general," he said.
A little more uncertainty was lifted from the market late in the day, when the Senate passed and sent to President Barack Obama the financial regulation bill. However, because regulations that will implement the bill's provisions have yet to be written, traders were still wary. Analysts said that likely contributed to the market's dip right before word of an SEC announcement.
"Another step toward financial regulation may have sparked some fear" and selling, said Todd Salamone, senior vice president of research at Schaeffer's Investment Service.
Bill Strazzullo, partner and chief market strategist for Bell Curve Trading in Boston, noted that JPMorgan Chase & Co. CEO Jamie Dimon earlier in the day said it wasn't possible to estimate the impact of the bill on his company's profits.
"Maybe the reality of it is finally upon us," he said.
The Dow fell 7.41, or 0.07 percent, to 10,359.31. The Standard & Poor's 500 index rose 1.31, or 0.1 percent, to 1,096.48, while the Nasdaq composite index fell 0.76, or 0.03 percent, to 2,249.08.
Losing stocks were slightly ahead of gainers on the New York Stock Exchange, where volume came to 1.1 billion shares.
Bond prices rose as investors worried about the economy sought safety the safety of government securities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.99 percent from 3.05 percent late Wednesday.
For much of the day, the market was down on pessimism about weak economic reports - a problem that will continue to dog the market. A day after the Federal Reserve issued a slightly more bleak outlook on the economy, steep drops reported in the Empire State and Philadelphia Fed Manufacturing indexes pointed to a slowing in manufacturing activity in the Northeast. Meanwhile, the Fed reported modest growth in industrial output nationwide. And the Labor Department said first-time claims for unemployment benefits fell last week, but that was largely due to seasonal factors.
"We've hit a soft spot," Howard Ward, chief investment officer at GAMCO Growth Fund, said of the economic recovery. "The question is, are we starting to already improve or are we still falling down."
The disappointing manufacturing reports, which followed a weeklong stock rally, made the market "susceptible to profit taking" after the market's week-long advance, Ward said.
There appeared to be a shift in investors' view of the economy. They had been upbeat over the past week on more positive economic signs, in particular forecasts from companies including Intel Corp. and Alcoa Inc. But the latest disappointing numbers now seem to be dictating investors' moves, and analysts questioned whether investors would start buying again if companies keep reporting strong earnings and outlooks.
JPMorgan Chase, the first big bank to report its second-quarter earnings, said it had set aside less money to cover losses on failed loans. That is a sign that mortgage and loan defaults may be moderating. But Dimon kept a cautious tone about future economic growth.
"Earnings are strong," said Sandy Mehta, principal and chief investment officer of Value Investment Principals. "But the underlying economy is not as strong."
JPMorgan Chase rose 11 cents to US$40.46. Several other big banks fell. Bank of America Corp. dropped 28 cents to US$15.39 and Citigroup Inc. fell 5 cents to US$4.16. Both companies report earnings on Tuesday.
Caterpillar Inc. fell 19 cents to US$66.51 on the downbeat manufacturing reports.
The euro climbed above US$1.28 for the first time in more than two months yesterday as investors worried about the strength in the U.S.
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