Stocks rocketed to their best one-day gains in six years on record volume Thursday on reports that the U.S. government could resort to a Resolution Trust Corp.-like solution to the 14-month old credit market crisis, similar to what the feds used to clean up the savings and loan mess of the 1980s.
Top U.S. financial officials were reportedly meeting with congressional and White House officials to discuss a solution to the crisis that has claimed a half-dozen of the nation’s biggest financial companies, the biggest financial crisis since the Great Depression.
The plan could involve a fund to buy troubled loans from banks, according to news reports, which would help clean up distressed balance sheets. While the plan could raise concerns about burdening taxpayers — one study put the taxpayer cost of the S&L cleanup at $124 billion — federal officials have apparently concluded that the risk of not acting is much greater. It appears from early market reaction that the government’s actions could help calm markets and an economy in turmoil.
Bear Stearns, Lehman Brothers, AIG, Fannie Mae and Freddie Mac are just a few of the names that have been claimed by the crisis, which was caused by an imploding subprime mortgage market, heavily leveraged and unregulated debt instruments, and by credit ratings agencies that gave their blessing to the instruments only to pull the plug on the companies at the heart of it at the very end, when they had no chance to raise money. The final straw spurring the latest government action was the failure of AIG, the first such implosion in the 112-year history of the storied Dow Jones Industrial Average.
In recent days, the crisis has spread to money market funds, until now widely believed to be safe.
The stock market recovered most of Wednesday’s losses on the news — but still remain more than 20% below their all-time highs set last year.
The Nasdaq rocketed 100 points, or nearly 5%, after touching a two-year low in early trading.
Dell (NASDAQ: DELL), Apple (NASDAQ: AAPL), Cisco (NASDAQ: CSCO), Nvidia (NASDAQ: NVDA), Yahoo (NASDAQ: YHOO), Adobe (NASDAQ: ADBE), Juniper (NASDAQ: JNPR), Google (NASDAQ: GOOG), eBay (NASDAQ: EBAY) and Research In Motion (NASDAQ: RIMM) were some of the sector’s biggest winners.
After the close, Oracle (NASDAQ: ORCL) gave the tech sector more good news, rising 2.5% after beating earnings estimates on 18% sales growth and strong margins.
The Nasdaq soared 100 to 2199, the S&P rose 50 to 1206, and the Dow soared 410 to 11,019. Volume rose to 10.62 billion shares on the NYSE, and 3.95 billion on the Nasdaq. Advancers led by a 26-8 margin on the NYSE, and 22-7 on the Nasdaq. Upside volume was 89% on the NYSE, and 90% on the Nasdaq. New highs-new lows were 72-1041 on the NYSE, and 97-397 on the Nasdaq.