For a change, Washington makes Wall Street feel better
Today may have marked an important turning point in market psychology: Government officials talked about the banking system -- and stocks didn’t plummet.
Instead, the market scored its biggest advance since Jan. 21, after Monday’s dive to 12-year lows. The Dow Jones industrials rallied 236.16 points, or 3.3%, to 7,350.94, recouping most of the previous session’s 250-point plunge.
Wall Street’s anxiety over the banks, and the frustration with the perceived lack of clarity in Washington’s plans to rescue the system without taking control of it and wiping out shareholders, have been major forces behind the stock market’s slump this year.
There was Treasury Secretary Timothy Geithner’s highly anticipated speech on Feb. 10, which triggered a 4.9% dive in the Standard & Poor’s 500 index after Geithner offered no details on the administration’s strategy.
The market never really regained its composure after that. On Monday, when federal financial regulators issued a joint statement declaring that "the U.S. government stands firmly behind the banking system," some bank stocks managed to inch up from multiyear lows, but the broader market took another dive -- sending the S&P 500 and the Dow to their lowest levels since 1997.
Today, Federal Reserve Chairman Ben S. Bernanke downplayed the idea that the government was expecting to take control of some major banks. "I don’t see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when it just isn’t necessary," Bernanke said at a Senate Banking Committee hearing, according to Bloomberg News.
And Sen. Chris Dodd apologized for saying on Friday that he was "concerned that we may end up" nationalizing some banks at least temporarily.
The financial-stock sector index in the S&P 500 led the market's advance today, surging 11.8%, although that just left it slightly above where it was on Feb. 17 (and still down 36% year to date).
President Obama gets a chance to say some more of the right things tonight, when he addresses Congress.
Market bulls might feel better about their chances if financial stocks could put together two back-to-back days of double-digit percentage gains. That has yet to happen since the sector’s meltdown began in late September -- so it’s something to watch for on Wednesday.
-- Tom Petruno
Photo: The Capitol Dome. Credit: Paul J. Richards / AFP Getty Images