Financial markets remained tense tonight after the Bush administration’s proposal for a 700 billion-dollar banking bailout ran into opposition from Republican politicians.
Stocks ended mixed, with big financial companies lifting the Dow Jones industrials more than 120 points, but worries about smaller banks and parts of the technology sector taking much of the market lower.
Demand for safe-haven buying in government debt remained high as investors uneasily watched events in Washington, where the Bush administration tried to overcome Republican objections to its rescue package.
According to preliminary calculations, the Dow rose 121.07, or 1.10 %, to 11,143.13. Gains by JPMorgan Chase & Co and Bank of America gave support to the 30-stock index. Most of their advance came late in the session as investors placed bets that a deal would emerge from Washington over the weekend.
Broader indicators were mixed. The Standard & Poor’s 500 index rose 4.09, or 0.34 %, to 1,213.27, and the technology-heavy Nasdaq composite index fell 3.23, or 0.15 %, to 2,183.34.
Republican lawmakers are concerned about the cost of the proposal, and they balked at the plan after congressional leaders said Thursday they had reached an agreement in principle. Shortly after today’s opening bell on Wall Street, President George Bush said at the White House lawmakers can express doubts but ultimately should “rise to the occasion” and approve a plan to stave off what he sees as an economic calamity.
The rescue is designed to remove billions of dollars of bad mortgages and other now-toxic assets from the books of financial firms in a bid to free up lending. Tight lending conditions make it harder and more expensive for businesses and consumers to borrow money, a headwind for the economy. In a last-minute shake up, some Republican politicians wanted an alternative plan under which the government would provide insurance to companies that agree to hold frozen assets, rather than have the US purchase the assets.
Volume was relatively light today as many investors chose to just wait. That helped skew some of the movements in the major indexes.
“I think the markets are on pause trying to figure out where this is going to go. Congress is still there,” said Mark Coffelt, portfolio manager at Empiric Funds in Austin, Texas. “Right now everyone is a little bit shellshocked.”
With no deal in place as trading ended tonight, investors were certainly going to be on edge throughout the weekend. And there was no way to predict whether Monday morning would bring a calmer market after weeks of intense volatility, or whether the turbulence would accelerate.
Credit markets remained strained, though they showed improvement. The yield on the 3-month Treasury bill, considered the safest short-term investment, rose to 0.84 % from 0.72 % late last night. The lower the yield on a T-bill, the more desperation there is in the market; investors are at times willing to take the slimmest returns to preserve their principal. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.85 % from 3.84 % late yesterday.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.17 billion shares.