Approval of the US government’s $700bn (€507.5bn) financial rescue plan today gave stocks on Wall Street a lift but overall failed to set off much euphoria in financial markets that are facing the reality of a prolonged economic downturn.
The Dow Jones industrial average fluctuated sharply, but managed to stay in positive territory.
While US legislators voted on the plan, the Dow was up more than 300 points. After it passed, the blue chips gave up almost all their gains before turning higher again.
“You’re probably seeing a little buy the rumour, sell the news mentality,” said Ryan Larson, senior equity trader at Voyageur Asset Management, a subsidiary of RBC Dain Rauscher. Plus, he added, there’s a feeling that this plan “isn’t a quick fix”.
“There are still a lot of problems out there,” Mr Larson said.
Investors had been anxious for resolution on the government’s plan to buy up bad assets from banks and other institutions to shore up the financial industry and help resuscitate credit markets. Trading across markets has been volatile throughout the week based on investors’ reading of whether the plan would win approval; on Monday, the House’s rejection took Wall Street and Capitol Hill by surprise.
The Senate subsequently passed its sweetened version of the plan that added tax breaks and raised the limit on federal deposit insurance from $100,000 (€72,487) to $250,000 (€18,121).
Investors are now contending with worries about the broader economy, not just the credit markets, and the knowledge that the plan’s passage won’t help the economy much in the near term.
On Thursday, the Dow industrials, which have seen triple-digit moves each day this week, fell 348 points on a growing belief that the plan won’t stop the US from falling into a prolonged recession.
The credit markets indicated increased demand for safety. The yield on the 3-month Treasury bill, the safest type of investment, fell to 0.51% from 0.70% late Thursday.
Yields have remained low in recent weeks because investors are eager to safeguard their money.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.71% from 3.64 percent late on Thursday.
In early afternoon trading today, the Dow rose 84.19, or 0.80%, to 10,567.04.
Broader stock indicators also rose. The Standard & Poor’s 500 index advanced 14.87, or 1.33%, to 1,129.15, and the Nasdaq composite index rose 24.15, or 1.22%, to 2,000.87.