Stocks Edge Higher after Obama Speech

After the President announced his intentions to trim the deficit by $4 trillion the Dow Jones rose 7 points, and the Nasdaq gained 17 points.

From CNN.com:

Despite a strong open -- thanks to better-than-expected earnings and revenue from JPMorgan Chase (JPM, Fortune 500) -- stocks spent the early part of Wednesday's session in the red.

The losses came after JPMorgan CEO Jamie Dimon said that mortgage-related losses would continue for some time, and warned that investors should not expect additional dividend increases beyond the 25 cents set for this quarter. Shares of the bank slid almost 1%. JPMorgan is the first major bank to report first-quarter results.

But the market again reversed course in the afternoon after Obama laid down a series of spending and deficit targets, adding that he wants $3 in spending cuts for every $1 in additional tax revenue.

"Investors wanted to see some movement toward fiscal responsibility, but just not too much and not too soon, and that's exactly what the president gave them," said Doug Roberts, chief market strategist at Channel Capital Research.

Roberts added that the market has been supported by the government's stimulative policies, including the Federal Reserve's Treasury purchases and Congress' decision last December to extend the Bush-era tax cuts.

"Investors are relieved to hear that Obama's plan to reduce the deficit is gradual, not imminent," Roberts said. "The government's deficit has been taking painkillers for years now, and it's finally about to get some surgery. But nobody's amputating anything."

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Stocks gain as confidence rebounds

The stock market has been a concern for many lately; especially when it comes to retirement nest eggs. You might rest easier tonight knowing that the stock market is doing better today than its intimidating dip yesterday. According to CNNMoney.com, markets were up for U.S. stocks led by a rebounding energy sector. The Dow Jones rose 225.5 points, or 2.3%, the S&P 500 index added 28 points (2.6%) and the Nasdaq is up 59 points, also 2.6%.

It seems the markets are being “driven by minute-to-minute reporting” of the news. Many people bailed out of BP stock yesterday upon hearing there would be a criminal investigation of the Gulf of Mexico oil spill and the latest attempt to plug the spill failed. Yet, as many lumped together all of the oil companies, it was realized BP made a mistake but not all oil is a bad investment.

Technology shares also increased as people realized their value. The National Association of Realtors said its pending home index which measures existing home sales, rose 6% in April when it was only expected to rise by 4.3%. General Motors and Ford Motor both posted large increases in May sales of their brands, as well as Toyota, only less.

In world markets, Japan’s index slid 1.1% after the nation’s prime minister resigned. Hong Kong’s Hang Seng index fell even lower. In the meantime, the euro rose against the dollar at $1.2247, bouncing back from the four-year low it had yesterday. Treasury bond prices are also lower. Sleep well U.S. investors, even if only for a night.

You can read the full article on CNNMoney.com here. If you are an investor or interested in investing, let me know what you think of this blog.

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Health Insurance Stocks Dip Lower Than Market

From The Associated Press:

Managed care stocks dipped slightly lower than the overall market Wednesday, after insurers received more bad publicity with letters from Congress asking for executive compensation details and other financial information.

Several stocks fell around 1 percent while the broader Standard & Poor's 500 index climbed slightly. Wednesday's performance followed a managed care rally on Monday, after statements from the Obama administration downplayed the possibility of a government-backed public health plan that many investors fear would provide unfair competition to private health insurers.

The stocks have gone through several volatile periods since the health care reform overhaul debate started taking shape earlier this year.

Dozens of insurers received requests for information that included records relating to compensation of highly paid employees, documents relating to companies' premium income and claims payments, and information on expenses stemming from any event held outside company facilities in the past 2 1/2 years.

The requests were made in letters signed by Rep. Henry Waxman, D-Calif., who guided a portion of health care legislation through the House Energy and Commerce Committee last month as chairman, and Rep. Bart Stupak, D-Mich.

Of the largest publicly traded health insurers, only Louisville, Ky.-based Humana Inc. has said it plans to cooperate fully. Others have only said they received the letters.

Stifel Nicolaus analyst Thomas Carroll said the request implies that health insurers are doing something wrong.

"It's further demonizing of the health insurance industry, and it's pushing the stocks back down today a little bit," he said.

Volatile Swings for Price of Oil Hobble Industry

From the NY Times.com:

The extreme volatility that has gripped oil markets for the last 18 months has shown no signs of slowing down, with oil prices more than doubling since the beginning of the year despite an exceptionally weak economy.

The instability of oil and gas prices is puzzling government officials and policy analysts, who fear it could jeopardize a global recovery. It is also hobbling businesses and consumers, who are already facing the effects of a stinging recession, as they try in vain to guess where prices will be a year from now — or even next month.

A wild run on the oil markets has occurred in the last 12 months. Last summer, prices surged to a record high above $145 a barrel, driving up gasoline prices to well over $4 a gallon. As the global economy faltered, oil tumbled to $33 a barrel in December. But oil has risen 55 percent since the beginning of the year, to $70 a barrel, pushing gas prices up again to $2.60 a gallon, according to AAA, the automobile club.

“To call this extreme volatility might be an understatement,” said Laura Wright, the chief financial officer at Southwest Airlines, a company that has sought to insure itself against volatile prices by buying long-term oil contracts. “Over the past 15 to 18 months, this has been unprecedented. I don’t think it can be easily rationalized.”

Consumer Confidence in the US Drops in June

Surprising new reports have emerged reporting that consumer confidence has dropped drastically in June of this year, adding more tension to an already shaky economic situation. For those of you not familiar with the term, check out the following definition from Wikipedia.

“Consumer confidence is the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. How confident people feel about stability of their incomes determines their spending activity and therefore serves as one of the key indicators for the overall shape of the economy. In essence, if consumer confidence is higher, consumers are making more purchases, boosting the economic expansion. On the other hand, if confidence is lower, consumers tend to save more than they spend, prompting the contraction of the economy."

According to a Yahoo Finance article, “the consumer confidence index fell to 49.3 in June from 54.8 in May,” while economist had predicted “healthier reading of 55.0 for the month.” Not surprisingly, the announcement has had a pretty decent impact on the U.S. stock market. Check out the following article explaining the affect on stocks courtesy of Reuters.

U.S. consumer confidence took an unexpectedly steep slide in June, figures released on Tuesday showed, suggesting the 18-month-long recession had yet to loosen its grip on the economy.

A separate report on April house prices in major cities offered some encouraging signs that the worst of the housing slump may be over, but that was not enough to lift investors' spirits. Another crop of economic data showed business activity in New York City and the Midwest remained weak, while retail chains slogged through a rough June.

Billionaire investor George Soros added to the cautionary tone, saying that rising borrowing costs posed a threat to any eventual economic recovery.

"As markets revive, fear of inflation will drive up interest rates, which will choke off recovery," he said at a breakfast hosted by the Wall Street Journal.

Major stock market indexes fell after the Conference Board's consumer confidence index showed households felt gloomier about their current situation and less optimistic about what the coming months might bring.

Kevin Kruszenski, head of listed trading at Keybanc Capital Markets in Cleveland, said the confidence data "kind of took the wind out of things a little bit."

U.S. Stocks Rise to Four-Month High as Banks Jump on Tests

From Bloomberg.com:

U.S. stocks advanced to a four-month high as investors speculated banks don’t need as much capital as had been projected and a report showed employers cut fewer jobs than economists estimated.

Citigroup Inc. surged 17 percent as people familiar with the matter said the lender needs only about $5 billion. Zions Bancorporation, the Salt Lake City-based bank, jumped 26 percent on expectations it will be able to raise capital, while Lincoln National Corp. rallied 33 percent on earnings that topped estimates. The gains also came after ADP Employer Services said companies eliminated 491,000 jobs in April, 154,000 fewer than the average economist estimate in a Bloomberg survey.

“I’m truly impressed that the market has held up, led by financials,” said Keith Wirtz, who helps oversee $20 billion as chief investment officer at Fifth Third Asset Management in Cincinnati. “There was so much noise surrounding the stress tests. Maybe people are starting to feel enough confidence that we’ll put this behind us and the world will continue.”

The Standard & Poor’s 500 Index added 1.7 percent to 919.53 at 4:08 p.m. in New York, its highest close since Jan. 6. The Dow Jones Industrial Average rose 101.63 points, or 1.2 percent, to 8,512.28. Europe’s Dow Jones Stoxx 600 Index climbed 1.4 percent, while the MSCI Asia Pacific Index rose 0.5 percent. Almost two stocks gained for each that fell on the New York Stock Exchange.

Stock-index futures fell before the open of exchanges on concern over how much capital banks would need to raise following the stress tests. People familiar with the matter said last night that Bank of America Corp. needs about $34 billion. Futures reversed declines as the ADP data eased concern rising unemployment will trigger more credit losses.

AIG Plans Another Lavish Resort Event

Last week, AIG (American International Group Inc.) got lots of bad publicity for hosting a $440,000 conference just weeks after getting bailed out by the federal government. Both the White House and Congress spoke out in displeasure, and both presidential candidates have also chastised AIG for the costly event. However, according to Bloomberg, they are already planning another.

“The event, at the Ritz-Carlton in California's Half Moon Bay, aims to ‘motivate and educate'’ about 150 independent agents who sell AIG coverage to high-end clients, said spokesman Nicholas Ashooh.

White House spokeswoman Dana Perino today called ‘despicable’ expenses from the first gathering, a weeklong conference last month at the St. Regis Resort in Monarch Beach. Those costs included $23,000 for spa services, according to Representative Henry Waxman, chairman of the Oversight and Government Reform Committee.

AIG considered buying advertisements to explain its position, only to be told by public relations consultant George Sard that it would be ‘a really bad idea.’

‘To spend the taxpayer's money on an expensive ad campaign to apologize for how you used taxpayer money leaves you open to further attacks,’ Sard wrote in an e-mail to Ashooh. Sard, chief executive officer of New York-based Sard Verbinnen & Co., said the message was a private e-mail mistakenly sent to Bloomberg and wasn't intended to be a public statement.

President George W. Bush didn't push for the bailout ‘to help top executives go to a spa,’ Perino said today at the daily White House briefing. Hours later, the Federal Reserve agreed to loan AIG an additional $37.8 billion on top of the initial $85 billion.

AIG Chief Executive Officer Edward Liddy, who replaced former CEO Robert Willumstad as a condition of the federal loan, today told Treasury Secretary Henry Paulson that the company intends to reevaluate expenses.

‘We understand that our company is now facing very different challenges,’ Liddy wrote in a letter to Paulson. ‘We owe our employees and the American public new standards and approaches.’

Policymakers: Congress Must Move Quickly to Avert Damage

From WashintonPost.com:

Consensus is building in Congress that a version of the bailout will be passed, and quickly, but that it will involve considerably more oversight and other provisions than were in the Bush administration's original plans.

In their most vigorous public defenses of the planned bailout to date, Paulson and Bernanke almost seemed to echo the outrage from their questioners. But they argued that the plan is necessary to protect ordinary Americans from the economic fallout of clogged markets for credit.

"I'm not only concerned, I'm angry about the things that got us here," said Paulson. "It makes me angry, and it makes you angry. You talk about taxpayers being on the hook? Guess what? They're already on the hook. If the system isn't stabilized, they're going to bear the cost."

He said later in response to a question, "I share the outrage that people have. It's embarrassing for the United States of America."

Both Paulson and Bernanke stressed that they are still working through details of how the government would price the troubled mortgage assets it buys under the $700 billion plan. But they asked that Congress leave them maximum flexibility to design those auctions or other procedures as they and their expert advisers see fit.

Stocks Sink After Government Bailout of AIG

From the Associated Press:

Wall Street stumbled again Wednesday, with anxieties about the financial system still running high even after the government bailed out the insurer American International Group Inc. The Dow Jones industrial average dropped about 300 points.

The Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 percent stake in the insurer, after it lost billions in the risky business of insuring against bond defaults. Wall Street had feared that the conglomerate, which has its tentacles in various financial services industries around the world, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy.

"People are scared to death," said Bill Stone, chief investment strategist for PNC Wealth Management. "Who would have imagined that AIG would have gotten into this position?"

He said the fear gripping the market reflects investors' concerns that AIG wasn't able to find a lifeline in the private sector and that Wall Street is now fretting about what other institutions could falter.

The two independent Wall Street investment banks left standing — Goldman Sachs Group Inc. and Morgan Stanley — remain under scrutiny, as does Washington Mutual Inc., the country's largest thrift bank. Morgan Stanley revealed its quarterly earnings early late Tuesday, posting a better-than-expected 7 percent slide in fiscal third-quarter profit. It insisted that it is surviving the credit crisis that has ravaged many of its peers.

Lehman filed for bankruptcy protection on Monday, and by late Tuesday had sold its North American investment banking and trading operations to Barclays, Britain's third-largest bank, for the bargain price of $250 million. Over the weekend, Merrill Lynch, the world's largest brokerage, sold itself in a last-ditch effort to avoid failure to Bank of America Corp.

The troubles in the financial sector could exacerbate the problems facing the weak U.S. economy, given that individuals and businesses rely on the nation's money centers.

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Bush Acknowledges Financial Pain

President Bush spoke at the White House Rose Garden this morning acknowledging that the country is facing financial pain. However, he was reluctant to mention Dow’s massive plunge, and did not provide many details on the administration’s plan to ease the countries pain.

"I know Americans are concerned about the adjustments that are taking place in our financial markets," noted President Bush. "We are working to reduce disruptions and minimize the impact on the [broader economy]. In the short run, adjustments in the financial markets can be painful, for people worried about their investments, and for employees of the firms."

Below is a list of recent economic developments from CNN.com.

Lehman: Lehman Brothers (LEH, Fortune 500) filed for the biggest bankruptcy in history after it failed to find a buyer, triggering a 95% stock plunge to 19 cents a share.

Merrill: Bank of America (BAC, Fortune 500) said it would buy Merrill Lynch (MER, Fortune 500) for $50 billion in stock, or $29. Merrill's stock surged 24% on the news to $21.20 a share, while Bank of America plunged 15% to $28.59 a share.

AIG: The stock plunged 44% to $6.89 a share for AIG (AIG, Fortune 500), after the insurance giant said it was getting ready to announce a restructuring.

Art Hogan, chief market strategist at Jefferies & Co., described this as the biggest economic crisis since the Great Depression of the 1930s and the railroad bankruptcies of the 1800s.

"We've never witnessed this before," said Hogan earlier in the morning, before Bush's speech. "There's no road map for this.”

Mortgage Crisis Slams Wall Street

According to CNN.com, the stock market had record drops today as Dow went below 11,000 for the first time in nearly two years.

“The Dow Jones industrial average (INDU) lost over 200 points, or 1.9%. The Standard & Poor's 500 (SPX) index and the tech-heavy Nasdaq composite (COMP) both fell at least 1.7%.

Fannie Mae (FNM, Fortune 500) fell around 30% and Freddie Mac (FRE, Fortune 500) fell 33%, adding to the weeklong battering for the government-sponsored mortgage backers amid worries about their ability to stay afloat.

As speculation grows about government intervention, Treasury Secretary Henry Paulson said Friday morning that the government is focused on assuring the health of the two companies. Fannie and Freddie trimmed losses on his comments, but remained deep in the red.

Lehman Brothers (LEH, Fortune 500) lost another 19% amid continued uncertainty about the brokerage's solvency since it reported a nearly $3 billion second-quarter loss last month. (Full story).”

Mutual Fund Taxes To Break Records

According to CNN Money, major mutual fund companies have begun estimating this year’s taxable distributions and the taxes are set to break records yet again. Last year their tax bills totaled $23.8 billion, which was the largest since 2000, but this year’s total is expected to be over $24 billion. One reason for the ever-growing tax bill is the past years "wild market," with plunging stocks and a soft housing market.