Wall Street Focused on Bank Rescue Plan

On Wall Street, the Dow Jones and S&P indices rose on Friday due to price increases in the financial sector as investors hope that a deal on the U.S. government’s bank rescue plan will be reached this weekend.

The Dow Jones index rose by 121 points or 1.10 percent, to 11,143 points, while the S&P index increased by 0.34 percent, to 1,213 points. The Nasdaq index, on the other hand, fell by 0.15 percent, to 2,183 points. Trading was very cautious throughout the day, with no major fluctuations in the leading indices, and only towards the end of the meeting did bank stock prices noticeably rise as investors hope that Republicans and Democrats will find a ‘common ground’ on the $700 billion bank rescue plan that has been negotiated all week. On Thursday afternoon, it seemed that Congress was close to an agreement, but new obstacles arose by evening, causing stock prices to fall on Asian and European exchanges on Friday.

"The market is now ‘betting’ that politicians will reach an agreement by the start of trading on Wall Street on Monday," says Fred Dickson, director of D. A. Davidson. Thanks to this, the S&P financial sector index jumped 3.2 percent yesterday. The biggest winner was JPMorgan’s stock, which rose 11 percent, followed by Bank of America’s stock with an increase of nearly 7 percent. Investors are completely focused on the bank rescue plan, which is expected to stabilize the financial system and prevent a potential economic recession, so all other news is secondary. Even the collapse of Washington Mutual, which is the largest bank failure in U.S. history, after $16.7 billion in deposits were withdrawn from the regional bank in just two weeks. The bank was closed, and JPMorgan purchased healthy assets for $1.9 billion.

"What we see in this crisis is that the strong become even stronger, while the weak will disappear," says William Smith, president of Smith Asset Management. Thus, Wachovia will likely also disappear, although it is the sixth largest U.S. bank by assets. Due to massive losses on mortgage loans, this bank is in trouble and is negotiating a merger. Potential buyers include Citigroup, Wells Fargo, and Banco Santander. And while the financial sector strengthened, the technology sector fell yesterday. Investors’ hopes that this sector could greatly ‘benefit’ if the bank rescue plan is accepted, as it could boost demand for technology equipment, have driven up stock prices of technology companies in recent days.

However, yesterday investors were shaken by a warning from Research in Motion, the maker of BlackBerry, that its earnings in the third quarter would be lower than expected. Consequently, RIM’s stock price plummeted by more than 27 percent, and among the larger losers was Apple’s stock, which fell by nearly 3 percent. Throughout last week, the Dow Jones index fell by 2.15 percent, the S&P index by 3.3, and the Nasdaq index by 3.9 percent. On European exchanges, stock prices fell on Friday. The London FTSE 100 index dropped by 2.09 percent, to 5,088 points, while the Frankfurt DAX index fell by 1.7 percent, to 6,063 points.(H)