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US stocks climb on GE results, bailout hopes

3 min

US stocks recovered somewhat amid renewed optimism generated by better-than-expected results from General Electric and hopes that Congress would grant a $25 billion bailout to the "Big Three" US automakers.

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AFP - Wall Street snapped back Tuesday from a brutal session a day earlier, with sentiment lifted by a better-than-expected outlook from General Electric and hopes for a US rescue for ailing Detroit automakers.

The Dow Jones Industrial Average rallied 270.00 points (3.31 percent) to close at 8,419.09, coming off a horrific 679-point loss on Monday.

The Nasdaq composite climbed 51.73 points (3.70 percent) to 1,449.80 and the Standard & Poor's 500 added 32.60 points (3.99 percent) to 848.81, after both fell more than eight percent on Monday.

Market action came as the Big Three Detroit automakers were pressing Congress for emergency loans of some 25 billion dollars to avert a potentially catastrophic collapse. General Motors, Ford and Chrysler presented their business plans outlining how they would restore profitability.

Colleen King at Schaeffer's Investment Research said driving the market gains was "auto bailout speculation," or anticipation that the Detroit firms will prevail in their request for government aid.

Gregory Drahuschak at Janney Montgomery Scott said GE was another big factor in the rally, noting that the US conglomerate reassured markets with its quarterly update.

Drahuschak said the nearly nine percent loss in the S&P 500 was due to "fear that GE's webcast today would include some significantly negative news."

But the markets snapped back, he said after the updated was "not as bad as feared."

GE said its fourth-quarter profit would be at the lower end of its forecast as it embarks on restructuring and other actions to cope with financial turmoil.

But despite the difficult economic environment, the company expects to earn more than 18 billion dollars in 2008, before restructuring and other charges, GE vice chairman Keith Sherin said.

John Wilson, equity strategist at Morgan Keegan, said the stock market may be able to sustain a rally even with the economy mired in recession.

"The market will begin to look through the trough well before we or the economists see it, so the fact that we are in a recession doesn't preclude the stock market forming a major low in here," he said in a note to clients.

He said one model "shows the S&P 500 over 70 percent undervalued (compared) to the 10-Year Treasury note."

Bonds set more records for low yields. The 10-year Treasury bond was yielding 2.693 percent from 2.719 percent Monday and the yield on the 30-year bond eased to 3.202 percent from 3.236 percent. Bond yields and prices move in opposite directions.

Among key stocks, GE paced the blue chips with a gain of 13.61 percent to 17.61 dollars after its business update.

GM revved higher by 5.66 percent to 4.85 dollars and Ford surged 5.88 percent to 2.70 dollars amid hopes their new business plans will persuade lawmakers to provide aid to the troubled auto giants.

In finance, Citigroup rallied 11.94 percent to 7.22 dollars after heavy losses on Monday, with others in the sector mainly higher. Bank of America added 11.83 percent to 14.37 dollars and Wells Fargo increased 10.56 percent to 25.89.

But Goldman Sachs fell 1.16 percent to 65.00 after The Wall Street Journal reported the storied investment bank may post its first quarterly loss since going public in 1999.

Delta Air Lines climbed 6.41 percent to 8.47 dollars after the leading US airline said it would cut flights to cope with the economic downturn.
 

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