Stocks rally on housing developments
NEW YORK – Wall Street rallied once again Thursday as investors bet that companies hurt by the housing crisis will benefit from a government plan to help financially stretched homeowners and from another interest rate cut.
The Dow Jones industrial average surged more than 170 points after a nearly 200-point rise Wednesday.
Wall Street has been concerned about the housing slump’s impact on consumers and started out a bit shaky Thursday when Target Corp. released lackluster sales and a downbeat December outlook. However, stocks eventually pushed higher; a weak consumer, though bad for corporate profits, at least supports the argument for the Fed Reserve to lower interest rates when it meets Tuesday. A rate cut could help reinvigorate the slowing economy and loosen up tight credit markets.
Stocks got an additional boost when President Bush announced a plan allowing some homeowners facing foreclosure to not only freeze interest rates for up to five years, but also refinance their mortgages. The plan was created by the Treasury Department, mortgage lenders and banks, and could help about 1.2 million homeowners, Bush said.
“That’s providing a glimmer of hope,” said Jim Herrick, director of equity trading at Baird & Co. “But there’s some skepticism. Is this really going to be the panacea to the subprime market? That’s the $64,000 question.”
Even Treasury Secretary Henry Paulson said the plan was not a “silver bullet.”
Foreclosures hit a record high in the third quarter, according to the Mortgage Bankers Association. The fallout from the crisis has weighed on the financial services sector this year, with banks and brokerages writing down some $80 billion worth of securities tied to mortgages.
The Dow rose 174.93, or 1.30 percent, to 13,619.89.
Broader stock indicators also extended their gains. The Standard & Poor’s 500 index rose 22.33, or 1.50 percent, to 1,507.34, and the Nasdaq composite index rose 42.67, or 1.60 percent, to 2,709.30.
Countrywide Financial Corp., the nation’s largest mortgage lender, rose $1.68, or 16 percent, to $12.10, on the government mortgage rate plan.
“Investors are having a collective sigh of relief that this is a positive signal the housing crisis and credit credit crunch will not cause the end of this bull market,” said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors.
Overseas, Japan’s Nikkei stock average rose 1.70 percent, while Hong Kong’s Hang Seng index rose 0.73 percent. Britain’s FTSE 100 fell 0.13 percent, Germany’s DAX index fell 0.05 percent, and France’s CAC-40 rose 0.26 percent.