On Tuesday, March 10, 2009, the stock market rocketed to its best day of the year. Every major index leapt by over 5.8% – led by the tech heavy NASDAQ that closed out at 1,358.28 and up by 7.07%. The testimony of Federal Reserve Chairman Ben Bernanke, along with the recent profitability of megabank Citigroup sparked the rally.
Ben Bernanke: Banks Will Not Fail
Bernanke’s speech delivered at the Council on Foreign Relations depicted today’s financial crisis as the worst economic event since the Great Depression. According to Bernanke, the myriad of drivers behind the collapse include a lack of U.S. savings, foreign trade imbalances, and a general dearth of global, over arching banking regulation. Still, Federal Reserve Chairman Ben Bernanke acknowledges that particular financial intermediaries are critical to stability and pledges Marshall Law in the interim:
“Until we stabilize the financial system, a sustainable economic recovery will remain out of reach. In that regard, the Federal Reserve and Treasury Department have stated that they will take any necessary and appropriate steps to ensure that our banking institutions have the capital and liquidity necessary to function well…We have reiterated the U.S. government’s determination to ensure that systematically important financial institutions continue to be able to make their commitments.”
Citigroup: The Bank That is Too Big to Fail Turns a Profit
The financial supermarket that is yet another poster child of egregious risk, corporate greed, and mismanagement has actually been profitable for the first two months of 2009. The profits highlight Citi’s first foray into the black since Q3 2007 and served as testimony that Washington rhetoric is translating into results. Insiders believe that the stock – that had been decimated to a pathetic 97 cents last week is undervalued. Beleaguered Citigroup Chief Executive Officer Vikram Pandit intimates:
“I am disappointed with our current stock price and the broad-based misperceptions about our company and its financial position. I am most encouraged with the strength of our business so far in 2009.”
Citigroup’s looming preferred stock conversion will deliver the institution as the strongest capitalized U.S. money center bank per Pandit’s memorandum. Citi shares spiked by 40 cents or 38.10% to $1.45 on the news and 1.1 billion shares of Citigroup traded hands on the day – representing the fourth highest volume count ever recorded on Wall Street.
The happenings, in-step with the testimony of Ben Bernanke ignited the stock market.
Bernanke, Citigroup Spark Wall Street Rally
The Dow Jones Industrial Average climbed by 379 points to finish at 6,926.49. Banking stocks on the Dow were especially strong. In addition to Citigroup’s big day, JP Morgan (NYSE: JPM $19.50 / +22.64%), American Express (NYSE: AXP $12.17 / +14.38%), and Bank of America (NYSE: BAC $4.79 / +22.73%) were all winners.
Blue Chip General Electric, recently trounced by speculation regarding the viability of its GE Capital unit also responded in tandem with the conventional banks and tacked on sharp, 19.7% appreciation to $8.87.
Strength in financials carried over into every stock market sector.
Technology was particularly resilient, as evidenced by the 8% jump of the Philadelphia Semiconductor Index to 205.84. Chip stocks, led by Texas Instruments (NYSE: TXN $15.66 / +6.6%), Rambus (NASDAQ: RMBS $8.77 / +11.2%), and Intel (NASDAQ: INTC $1.37 / +10.9%) outperformed the market on the day. TI encouraged investors with a narrowed sales forecast that is the mark of increased visibility.
The worst is over.
Even the bad news was met with euphoria. Industrial conglomerate United Technologies (NYSE: UTX) announced a plan to slash an additional 11,600 jobs from the payroll. Never mind that – UTX shares gapped upwards by $3.23 and 8.6% to $40.79.
Stocks Surge to Biggest Advance of 2009, Sources:
Ben Bernanke, Financial Reform to Address Systemic Risk, http://www.federalreserve.gov/newsevents/speech/bernanke20090310a.htm
Benjamin Pimentel, Texas Instruments, Rambus lead sector rally, http://www.marketwatch.com/news/story/nasdaq-surge-gives-tech-stocks/story.aspx?guid=%7B5CA70A37%2DF30B%2D45F7%2DB483%2D0A02122A7F0E%7D&tool=1&dist=bigcharts&symb=SOXX&sid=11520
Rita Nazereth and Lynn Thomasson, Stocks Post Best Rally of 2009, http://www.bloomberg.com/apps/news?pid=20601087&sid=a0Ii37swxioo&refer=home