Stocks soar, dive and hang on to gains
NEW YORK -- By recent standards, Tuesday was a placid day on Wall Street, with panic giving way to a sense of stability and light profit taking leaving the bulk of the stock market's huge gains from a day earlier intact.
On a day when the government unveiled a plan to inject $250 billion into capital-starved banks in return for stock, not even the Dow Jones industrials' failure to hold a 400-point rally could dampen hopes that the credit crisis engulfing stocks has been downgraded from a Category 5-type financial storm to a still-dangerous but potentially less-destructive one.
A day after the Dow shot up a record 936 points (after falling a record 18.2% last week), investors viewed the Dow's 77-point drop to 9311 as a victory of sorts.
Investors snapped up stocks Monday in anticipation of the government's plan. President Bush said Tuesday the government will use part of the $700 billion bailout to inject capital into the nation's major banks. Governments in Europe have announced a similar move for their own troubled banks.
The stepped-up efforts of government, both here and abroad, to combat the global financial crisis is a first step toward transforming the mind-set of the market from chaos to order.
"We are moving out of panic mode and moving into stabilization mode," says Jon Najarian, an analyst at OptionMonster, a financial website.
Still, the government's latest rescue plan doesn't mean that problems in the banking sector and less robust profit growth at U.S. companies because of the sluggish economy will be fixed quickly. Wall Street will be watching closely to see if the rescue plan will indeed thaw credit markets enough to get banks lending again.
Intense scrutiny of the current third-quarter earnings season is also likely, as investors will be listening closely to what companies say about global business and profit outlooks in the final few months of 2008 and next year.
"Most investors are concerned about the companies' future-earnings guidance," says Ryan Jacob, portfolio manager at Jacob Internet Fund.
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