A hopeful forecast from Ben Bernanke helped stocks rebound from Monday's declines that sent the Dow industrials and S&P 500 index to 12-year lows. Bargain hunting and short-covering lifted financial and other stocks after the Federal Reserve chairman, in testimony to the Senate Banking Committee, said the recession might end this year. Bernanke also downplayed the idea of nationalizing banks as a way to ensure their viability, reports S&P MarketScope.
On Tuesday, the 30-stock Dow Jones industrial average rose 236.16 points, or 3.32%, to 7,350.94. The broad S&P 500 index climbed 29.81 points, or 4.01%, to 773.14. The tech-heavy Nasdaq composite index jumped 54.11 points, or 3.90%, to 1,441.83.
On the New York Stock Exchange, 27 stocks were higher in price for every 4 that declined. Nasdaq breadth was 20-12 positive. Trading was active.
Bonds were mixed after after a 2-year note auction. The dollar index was lower at 86.83. Gold futures fell sharply to $968.90 per ounce. Crude oil futures moved higher to $40 a barrel.
Market players received reports Tuesday on the S&P/Case-Shiller 20-city home price index, which fell a record 18.5% year-over-year, and the Conference Board's February consumer confidence index, which plunged to 25 from 37.4.
Bernanke delivered his semiannual monetary policy testimony Tuesday to the Senate Banking Committee. The Fed chief reiterated the central bank is committed to using "all available tools" to stimulate the economy and improve the functioning in the financial system. He noted that significant stresses remain in the system currently, and while the Fed expects a recovery to begin in the second half of the year, that will depend on the markets. He believes that a full recovery is going to take some two to three years, however. He sees the need for an "exceptionally low" funds rate target for some time.
Though the housing and auto sectors remain weak, the Fed chief does expect them to be part of a full recovery, according to answers to questioning. On bank capital adequacy, he acknowledged the many deficiencies and said there is more work to be done in this area. "We need to think of a new regime where capital would be related more closely to the assets being held by an institution."
President Barack Obama will address a joint session of Congress Tuesday night.
Traders also eyed news that Citigroup (C) and American International Group (AIG) were seeking additional federal funds to keep operating. Such moves could result in the U.S. government substantially expanding its ownership of struggling companies, says S&P.
The Wall Street Journal reports AIG is seeking an overhaul of its $150 billion government bailout package that would substantially reduce the insurer's financial burden, while further exposing U.S. taxpayers to its fortunes, people familiar with the matter say. Under the plan, the government loan of up to $60 billion at the heart of the bailout would be repaid with a combination of debt, equity, cash and operating businesses, such as stakes in AIG's lucrative Asian life-insurance arms.
AIG said Tuesday it continues to work with the U.S. government to evaluate potential new alternatives for addressing its financial challenges. The company will provide a complete update when it reports financial results in the near future. Separately, Bloomberg reports AIG received bids from MetLife Inc. (MET) and Axa SA (AXA) for its American Life Insurance Co. unit. The report said MetLife made a preliminary offer of $11.2 billion for American Life Insurance Co., which might fall to $8 billion because of the deterioration of the unit's financial condition.
In economic news Tuesday, U.S. consumer confidence dropped to a new record low at 25.0 in February, after falling to 37.4 in January. The index was much worse than the 35.8 expected and well below the 76.4 reading seen a year ago. The present situations component fell to 21.2 vs. 29.7 in January, while expectations plunged to 27.5 from 42.5 previously. The one-year inflation expectations index rose to 5.9% from 5.6% last month.
"The report was much worse than expected, suggesting that household have little confidence in the administration's stimulus package and other aid attempts," says S&P senior economist Beth Ann Bovino.
The Standard & Poor's/Case-Shiller home price index (20 cities) fell 18.5% from a year earlier in December, worse than the 18.2% November decline but about in line with expectations. Prices were down 2.5% in the month (not seasonally adjusted). The index is now down 26.7% from its second quarter peak. All 20 metro areas reported negative annual rates of change, with eight MSAs now reporting negative rates exceeding 20%. The largest year/year decline is in the bubble cities, with Phoenix down 34%, Las Vegas 33%, and San Francisco 31.2%. Denver is the best performer, down only 4%, followed by Dallas (down 4.3%).
Among companies in the news Tuesday, Microsoft (MSFT) CEO Steve Ballmer said at an analyst meeting that conditions remain difficult and sales will be impacted by deteriorating PC demand and lower IT spending. He also expects online ad revenue to be pressured.
JPMorgan Chase & Co. (JPM) announced late Monday that that it has reduced its quarterly common stock dividend from $0.38 to $0.05 per share, effective for the dividend payable April 30, 2009, to shareholders of record on April 6, 2009. This action will enable the company to retain an additional $5 billion in common equity per year.
JPMorgan noted that first-quarter financial performance quarter-to-date is "solidly profitable" even after significant additions to reserves, and the outlook for the quarter is roughly in line with analyst expectations.
Home Depot (HD) posted better-than-expected $0.19 (excluding a business rationalization charge and a write-down of its investment in HD Supply) vs. $0.40 fourth-quarter EPS from continuing operations on a 13% drop in same-store sales and a 17% total sales drop. Wall Street was expecting $0.15 EPS in the current quartewr. Home Depot sees a fiscal 2010 same-store sales decline in the high single-digits, a total sales decline of about 9%, and a 7% drop in EPS from continuing operations.
RadioShack (RSH) posted $0.50 vs. $0.77 fourth-quarter EPS on a 9.2% same-store sales drop and a 7.7% total revenue drop.
DTE Energy (DTE) posted $0.88 vs. $1.01 fourth-quarter operating EPS on 1.8% lower revenue. The company tied the drop in EPS primarily to lower sales and higher uncollectible expense at Detroit Edison, partially offset by increased revenue at MichCon from sales of base gas from storage and fewer shares outstanding. For 2009, DTE sees operating EPS of $2.75 to $3.05.
Genentech (DNA) said that a Special Committee of its Board of Directors unanimously recommended that shareholders reject the unilateral tender offer from Roche to acquire all of the outstanding shares of Genentech not owned by Roche for $86.50 cash per share. The Special Committee determined that offer was inadequate and not in best interests of stockholders, other than Roche and its affiliates.
Aeropostale (ARO) said it will close its Jimmy'Z concept, including its 11 Jimmy'Z stores in the second quarter of fiscal 2010.
Nordstrom (JWN) posted $0.31 vs. $0.92 fourth-quarter EPS on 13% lower same-store sales and 8.5% lower total sales. The company said fourth-quarter sales were slightly better than original expectations and EPS was in-line with consensus expectations of $0.30. For fiscal 2010, Nordstrom expects same-store sales to decrease 10%-15%, which yields EPS of $1.10-$1.40.
H.J. Heinz (HNZ) posted $0.76 vs. $0.68 third-quarter EPS on a 3.9% sales rise (excluding foreign currency translation). Heinz said the strong EPS growth reflected increased pricing, its decision to hedge translation exposures on key currencies, and higher organic sales of brands such as Heinz Ketchup and soup, and Classico pasta sauces. The company reaffirmed its fiscal 2009 guidance of $2.87-$2.91 EPS, with organic sales growth of around 6%.
Medco Health Solutions (MHS) posted $0.59 vs. $0.43 fourth-quarter EPS (excluding amortization of intangible assets) on a 14% revenue rise. Medco sees $2.67-$2.77 2009 EPS (excluding amortization of intangible assets), representing 15%-19% year-over-year growth.