Markets calm down despite the craziness
— -- Investors pushed up the stock market and calmed down the bond market Thursday on the growing realization that Congress is likely to approve the financial system bailout package in a form close to what the Treasury recommended.
Investors can't decide whether to celebrate or hunker down as the nation's leaders fight over plans offering help to the financial system.
Stock investors applauded and bond investors relaxed a bit on reports Thursday that Congress was nearing an agreement on the $700 billion bailout plan.
But after the close it became clear a congressional compromise was still far off, showing that timing of a bailout announcement and the details of what it will include could remain a big uncertainty for financial markets.
"Something needs to be done," says Oliver Wiener, trader at investment management firm BTIG. Investors' initial approval of a possible deal Thursday was evident in the:
•Stock market. The Dow Jones industrials rose 197 points, or 1.8%, to 11,022 and the Standard & Poor's 500 index rose 2.0%. But unease remains. Stocks are below where they were Sept. 18 when investors originally heard of the plan. And the CBOE Volatility index, a measure of investor fear, is higher than it was Sept. 16.
•Credit markets. Debt investors, rattled Wednesday night by protracted debate in Congress, calmed down Thursday. The three-month Treasury bill, snapped up by edgy investors all week, sold off to push the yield from 0.49% to 0.72%. "We see the improvement in many gauges," says Tony Crescenzi, strategist at Miller Tabak.
•Financial sector. The Financial Select Sector SPDR exchange traded fund, which tracks bank and brokerage stocks, rose 2.8%. The CDR Counterparty Risk index, which measures concern about the health of leading banks and brokerages, eased 1%.
But the nervousness is still far from being erased, especially among bond investors, says Julian Mann, vice president of First Pacific Advisors. "When politicians are smiling, I get nervous," he says.
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