MarketView for February 6

Summary

Stock prices moved sharply higher on Friday as the stimulus package worked its way through Congress and word was that a bank rescue plan would be unveiled on Monday by Treasury Secretary Timothy Geithner. The bank package aims to shore up bank balance sheets and reignite lending. Some of the ideas under discussion for the bank rescue plan include asset guarantees from the government, buying up toxic assets and housing them in a so-called "bad bank," and capital injections to keep the banks afloat.

Bank of America rose more than 25 percent the day after falling to its lowest level since 1984 on fears it would have to be nationalized; an issue that CEO Ken Lewis said was unfounded. Bank of America ended the day up 26.7 percent to $6.13 but remains down more than 50 percent year-to-date. Lewis, in an interview with CNBC, said "categorically" that the bank did not need more money from the government and does not expect to be nationalized.

As the Senate struggled to craft the stimulus package, with moderate senators trying to trim the $937 billion price tag, Senate Majority leader Harry Reid said he hoped that "between 5:00 and 7:00 today" there would be a deal for senators to vote on. As a late breaking note, that did happen.

Gains of the last two days pushed the NASDAQ into positive territory year-to-date for the first time since early January. For the week, the Dow was up 3.5 percent, the S&P 500 was up 5.2 percent and the NASDAQ saw its best week since early December, up 7.8 percent.

However, the day’s economic data was a shock., The Labor Department reported that nonfarm payrolls fell in January by the largest amount since December 1974 as the recession deepened, sending the unemployment rate up to 7.6 percent.

With gains widespread, the tech sector was also a standout. Apple closed up 3.4 percent at $99.72, and Research In Motion was up 4.2 percent to $59.17. The group is viewed as likely to be among the first to pull out of the economic slowdown.

Job Data a Disaster

The Labor Department reported on Friday that employers cut 598,000 jobs in January, the largest monthly loss in 34 years, and the jobless rate soared to a 16-year peak, putting pressure on lawmakers to act quickly to counter a deepening recession.

President Barack Obama said it was "inexcusable and irresponsible for any of us to get bogged down in distraction and delay or politics as usual while millions of Americans are being put out of work." However, Republican leaders sought to trim back the package for fear of driving up budget deficits.

Last month's job cuts were the most severe since December 1974, while the unemployment rate hit 7.6 percent, its highest level since September 1992. The jobless rate, which stood at a low 4.9 percent a year ago, has jumped a full percentage point over just the last three months.

A separate report from the Federal Reserve showed consumers reduced credit use for a third straight month in December, a sign of spending caution as jobs disappear. Consumer credit use contracted by $6.6 billion in December after falling $11.04 billion in November, the largest monthly drop since records were started in 1943.

Prices for U.S. government debt sank, however, on worry a wave of borrowing will be needed to fund new spending.

Price of Crude Oil Falls

The price of sweet domestic crude light crude for March delivery settled down $1 at $40.17 a barrel. London Brent, which usually trades below its U.S. counterpart, settled down 25 cents at $46.21. .S. crude is trading well below Brent as inventories in Cushing, Oklahoma, the delivery point for the U.S. crude futures contract, are at record levels. The economic slowdown has curbed demand for fuel around the world, causing prices to fall over $100 from a peak near $150 last July.

The head of Italy's largest oil company predicted that oil could stay as low as $40 for the rest of 2009. "A price of $40 a barrel, it's roughly my forecast for this year," Chief Executive Paolo Scaroni said. That level is too low for OPEC to generate enough revenue or encourage investment in new supply.

In a bid to boost prices, OPEC agreed to cut a further 2.2 million barrels per day (bpd) from January. The reduction comes on top of curbs of 2 million bpd in place since September. OPEC sources have indicated the group could cut a further 1 million bpd from output when it next meets on March 15.

GE Reviewing Dividend

General Electric will evaluate its planned second-half dividend in light of the slumping global economy, the company said on Friday, leaving open the possibility of a cut in the payout. GE shares, which climbed 5.5 percent earlier in the day, gave up most of the gains on the news.

"The board and I will continue to evaluate the company's dividend level for the second half of 2009 in light of the growing uncertainty in the economy," Chief Executive Jeff Immelt said in a statement. "Our fundamental priorities will remain keeping the company safe and secure in the current environment and investing in attractive growth opportunities."

GE confirmed it would pay a second-quarter dividend of 31 cents per share on April 27 to shareholders of record on February 23. According to the company, it has $48 billion in cash on hand and so far this year has raised 64 percent of the money it aims to raise on debt markets.

The company in November said it planned to pay its regular dividend through the end of 2009. It stood by that plan last month when it reported a 44 percent drop in quarterly profit. However, there has been intense speculation in recent weeks that the $1.24 per share annual payout could be vulnerable.