Stocks closed mixed on Wednesday, mirroring the uncertainty hovering over the Treasury's proposed $700 billion rescue of the nation's banks.
Today's Market
The Dow Jones Industrial Average fell 29.00 points, or 0.27%, to 10825.17. The broader S&P 500 Index dropped 2.33 points, to 0.20%, to 1185.89 while the Nasdaq Composite Index picked up 2.35 points, or 0.11%, to 2155.68. The consumer-friendly Fox 50 Index lost 0.11 points, or 0.01%, to a reading of 860.19.
While the markets rallied late in the day, stocks failed to post a significant rebound from what was the worst two-day losses on Wall Street since 2002.Anxiety over the government's proposal for rescuing the credit markets pushed the Dow down about 600 points this week. The benchmark index has plummeted more than 23% since hitting record highs nearly a year ago.
The markets were unable to rally around Warren Buffett's high-profile investment in Goldman Sachs(GS) -- a move that is seen as a sign of confidence in financials.
Drug maker Merck (MRK) and consumer products giant Proctor & Gamble (PG) posted the largest percentage gainers on the Dow Wednesday. On the other hand, the index was weighed down by Citigroup (C) and Caterpillar (CAT)
Bailout Jitters
The markets were ebbing and flowing on Wednesday with the latest headlines emerging from Washington on the status of the Treasury's $700 billion bailout package.
Lawmakers have yet to sign off the massive rescue aimed at unfreezing the nation's credit markets even as regulators have warned of disastrous consequences for the nation's financial system if a deal isn't reached. Some progress appears to have been made, though, as Treasury Secretary Henry Paulson agreed the legislation should tackle the issue of curbs on executive compensation for participating banks.
At the same time, President Bush is scheduled to address the bailout in a speech at 9 p.m. EDT. Sen. JohnMcCain, the Republican nominee for president, announced plans to "suspend" his campaign and return to Washington to deal with the bailout negotiations. McCain also said he doesn't believe the plan in its current form will pass.
The rescue effort being debated in the halls of Congress would authorize the Treasury to buy and hold toxic mortgage-backed assets that have strangled banks' balance sheets. Eventually, the government would be able to sell the assets, potentially at a profit.
Paulson and Federal Reserve Chairman Ben Bernanke brought their sales pitch back to Congress on Wednesday as they continue to prod lawmakers to pass the package quickly.
"I do think this is quite consequential. The pain (of inaction) would be significant," Bernanke told lawmakers, calling the current credit mess "the most significant financial crisis since the post-war period."
Financial stocks closed lower, unable to carry any momentum from Buffett's first major banking investment since the credit crisis slammed WallStreet. Buffett's Berkshire Hathaway (BRK) holding company announced late Tuesday it bought $5 billion of Goldman's perpetual preferred stock and will have the right to buy $5 billion of common stock within five years.Goldman also said it plans to raise $5 billion in capital in public offerings.
The major investment comes just days after Goldman and fellow investment bank Morgan Stanley (MS) abandoned their business models to transform into commercial banks. Morgan and Goldman made that decision as their rivals began dropping like flies, leaving the two banking giants as the lone independent investment banks on Wall Street.
Meanwhile, crude oil prices closed lower on the day even after the government reported an unexpected drop in crude supplies. Oil closed down 45 cents to $105.02 a barrel.
The Department of Energy said crude stockpiles declined by 1.5 million barrels last week. Energy analysts had expected crude oil stockpiles to have risen by 1.6 million barrels last week, according to energy information company Platts.
FBI Probe
According to The Wall Street Journal, the FBI has opened preliminary investigations into possible fraud at four of the financial giants at the forefront of the credit crisis: American InternationalGroup (AIG), Lehman Brothers (LEH) and mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE).
The investigations will focus on the companies’ top executives and bring the total new inquiries to 26, The Associated Press reported.
Corporate Movers
Morgan Stanley (MS) and Wachovia (WB) have ended their merger talks as Morgan has instead focused on a partnership with Mitsubishi UFJ's (MTU), Reuters reported. MUFG, which is Japan's largest bank, agreed to buy a stake of as much as 20% of Morgan earlier this week. The MUFG deal and Morgan's decision to convert into a commercial bank have made a deal less critical, sources told Reuters.
General Motors (GM) said it has made "significant progress" on its plans to boost liquidity by $15 billion and also said it will accelerate efforts to cut costs by $10 billion. GM Treasurer Walter Borst said on Wednesday the company could sell a parts factory located in Strasbourg, France. The auto maker has been under great pressure to sell assets and lower costs as it has lost about $1 billion a month while truck sales have plummeted.
Yahoo! (YHOO) could soon reenter talks with Time Warner (TWX) over a possible combination with the media giant’s AOL business. In its first meeting since billionaire activist investor Carl Icahn joined the board, Yahoo’s new board of directors signed off on a new round of talks between the two companies, according to the Financial Times. Yahoo! reportedly spoke to Time Warner earlier this year as it was exploring options to fend off Microsoft’s (MSFT) takeover attempt.
Lowe’s (LOW) stood by its forecast for a 2008 profit of $1.48 to $1.56 per share but downgraded its store growth plans. Analysts have been calling for a profit of $1.53 per share. The home improvement retailer now expects to open 75 to 85 new stores next year, compared to its earlier forecast for 120 new stores.
AIG (AIG) formally signed an agreement to give the government an 80% stake in exchange for an emergency $85 billion loan. The deal was forged last week as the Federal Reserve feared a bankruptcy of the insurance giant would cause a financial disaster.
Data Dump
The markets had a muted response to a new report from the National Association of Realtors that showed existing home sales tumbled by 2.2% last month to an annualized rate of 4.91 million. Economists had been expecting a more modest decline of 1.6%.
The NAR, an industry group, also said median home prices plunged by 9.5% in August to $203,100 -- the largest one-month decline since 1999.
Global Markets
The Dow Jones Euro Stoxx 50 Index, which tracks the 50 largest companies in Europe, was down 20.00 points, or 0.64%, to 3119.83.
In Asia, Japan's Nikkei 225 Index closed up 24.44 points, or 0.20%, to 12115.03 while Hong Kong's Hang Seng gained 89.14 points, or 0.47%, to 18961.99.
Banks Scramble to Realign
