Investors appeared emboldened today by the U.S. government's decision to invest $20 billion in Citigroup and guarantee $306 billion in risky assets.
Wall Street barreled higher Monday for the second straight session, this time in a relief rally over the government's plan to bail out Citigroup Inc. — a move it hopes will help quiet some of the uncertainty hounding the financial sector and the overall economy. The Dow Jones industrials soared nearly 400 points and the major indexes all jumped more than 4.5 percent.
The advance gave the market its first two-day advance since Oct. 30-31. Although investors sensed last week that a rescue of Citigroup was forthcoming, investors nonetheless were heartened, even emboldened, by the U.S. government's decision late Sunday to invest $20 billion in Citigroup and guarantee $306 billion in risky assets.
Wall Street's enthusiasm surged not only because the bailout answered questions about Citigroup but also because many observers saw the move as offering as a model for how the government might carry out other bank stabilizations.
"This could be the template for saving the banks," said Scott Bleier, founder of market advisory service CreateCapital.com.
"The government has taken a new quill out, they've gone to where they didn't go before in terms of trying to secure the system," Bleier said. "Some of that vulnerability seems to be gone now."
Still, the market remains wary, especially with the economy in a serious downturn. The Dow was up more than 500 points in the last hour before giving up some of its gains — many investors wanted to take some money off the table before the next bit of bad news arrives. And the market has frequently done sharp reversals since the start of the credit crisis 15 months ago.
The efforts from the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. to help stabilize Citigroup are only the latest this year to support a banking system troubled by bad debt and flagging confidence. Besides implementing its $700 billion bailout plan for the overall financial industry, the government has bailed out insurance giant American International Group Inc. and taken over lenders Fannie Mae and Freddie Mac.
"You're definitely seeing relief," said Anthony Conroy, managing director and head trader for BNY ConvergEx Group. "More than anything, the Fed repaired some of the psychological damage that was being done to the sector. I think the Fed is poised to do whatever they possibly can to help the financials get through the current turmoil."
"Not all banks are unhealthy, so knowing that the Fed is there is enough," Conroy said.
According to preliminary calculations, the Dow rose 396.97, or 4.93 percent, to 8,443.39.
Broader stock indicators also jumped. The Standard & Poor's 500 index advanced 51.78, or 6.47 percent, to 851.81, and the Nasdaq composite index rose 87.67, or 6.33 percent, to 1,472.02.
The Russell 2000 index of smaller companies rose 30.25, or 7.44 percent, to 436.79.