Stocks Rally on GMAC Funding
Stocks moved solidly higher Tuesday amid news that the U.S. government loaned $5 billion to GMAC (GKM), the finance arm of struggling auto maker General Motors (GM). S&P MarketScope notes that there was short covering and selective buying on the next to last day of 2008, taking away a bit of the sting of one of the stock market's worse years in decades.
On Tuesday, the 30-stock Dow Jones industrial average rose 184.46 points, or 2.17%, to 8,668.39. The broader S&P 500 index moved up 21.22 points, or 2.44%, to 890.64. The tech-heavy Nasdaq composite index added 40.38 points, or 2.67%, to 1,550.70.
The main event of the session was the federal government committed $5 billion to stabilize GMAC, the financing company vital to the future of General Motors, in exchange for preferred stock. The Treasury Dept. also said it will lend up to $1 billion to GM so that it can purchase additional equity that GMAC is planning to offer as part of its effort to raise more capital. The money is coming from the $700 billion bank bailout plan, marking the first effort by a financial company to offer more affordable credit to consumers.
GMAC said it will loosen its tight lending standards that have made loans harder to get for potential buyers of GM vehicles. In hopes of reviving car sales, General Motors said Tuesday it will offer 0% financing on some slower-selling 2008 and 2009 models.
Investors didn't pay much attention to Tuesday's negative economic news. The Conference Board's consumer confidence index fell to a new all-time low of 38.0 in December, following the small November bounce from its prior record-low of 38.8 in October to 44.7 in November. The figure is now well below the previous cyclical low of 51.0 in July, and lows from prior cycles of 47.3 in February of 1992, and 50.1 in May of 1980. The report indicated that consumers are worried about the jobs market. "The reading is consistent with the data on claims for unemployment insurance, which have continued to rise in recent weeks, suggesting more sizable job losses in December," said Julia Coronado at Barclay's Capital in a note Tuesday.
The S&P/Case-Shiller 10-city house price index fell 19% in October and the 20-city fell 18% -- which was widely expected.
On the positive side, the Chicago PMI, a manufacturing survey for that area, improved to 34.1 in December after a 4 point decline to 33.8 in November as the pace of contraction in the region slowed somewhat.
Bonds moved up, with 10-year notes up 09/32 at 114-28/32 for a yield of 2.082% and the 30-year bond up 1-04/32 to 139-05/32 for a yield of 2.591% in thin trading. S&P MarketScope says some buying erupted after the Treasury's $22 billion 4-week bill auction produced solid results that eased worries about next year's heavy supply to support economic stimulus plans designed to help rescue the nation from the worst recession in decades.
February West Texas Intermediate crude oil futures were down 58 cents to $39.44 a barrel. January reformulated gasoline futures were up 0.56 cent to 88.01 cents and January heating oil futures rose 1.15 cents to 129.68 cents on thin yearend trading.
The dollar index fell 0.71 to 80.73. Gold futures were lower.
Among other stocks in the news, Rohm & Haas (ROH) shares regained some ground after Bloomberg reported that Dow Chemical (DOW) lenders including Bank of America (BAC), Citigroup (C) and Morgan Stanley (MS) may press DOW to renegotiate its takeover of Rohm & Haas (ROH) to avoid losses on a $13 billion loan to fund the deal.
Following news that Kuwait Supreme Petroleum Council will not approve the joint venture that Dow Chemical was to enter into, S&P Ratings Services lowered its corporate credit and senior unsecured ratings on DOW to 'BBB' from 'A-'. Long-term ratings on DOW and 'A-2' commercial paper rating remain on CreditWatch with negative implications. Moody's also cut credit rating for DOW.
Biovail (BVF) announced a voluntary recall of certain lots of Ultram ER 100mg tablets from pharmacies and wholesalers because certain lots are out-of-specification by about 1% with respect to maximum dissolution at the 8-hour mark. Estimates recall will hurt Ultram ER revenues by $4.4 million in the fourth quarter 2008, the majority of which is expected to be recognized in the first quarter 2009 as replacement shipments of Ultram ER 100mg tablets are made to the company's marketing partner, PriCara.
Rick's Cabaret International (RICK) shares fell after the company posted lower-than-expected $0.91, vs. $0.51 a year ago, fiscal year 2008 EPS on 87% revenue rise. Sales from nightclub operations for same-location, same-period increased by 15%. The Street was looking for fiscal year 2008 EPS of $1.00. Merriman Curhan cut estimates.