US Economic Stimulus Package, TARP, Big Three under Spotlight in Coming Week
With the much publicized $787 economic stimulus package having been passed by the Senate and due to be signed into law by President Obama this week, investors are anxious for the specifics of the bill that aims to soften the blow of the growing recession. Last week saw investors dumping their stocks in the midst of uncertainty, partially resulting from a lack of communication with regard to the scope of the stimulus package. The Dow ended the week on 7,850.41, a 5.2 percent drop, with the S&P 500 losing 4.8 percent and the Nasdaq falling 4.8 percent. With Monday 16 February being President’s Day, stock market traders are hopeful that when trade begins on Tuesday, the fact that the stimulus plan has been passed by the senate may be enough to boost investor confidence – at least to some extent.
Another factor impacting negatively on investor confidence includes the news that the companies making up the S&P500 are likely to post a collective quarterly loss. This is an indication that corporate America has been taking more strain than originally thought and will be the first time ever that a collective quarterly loss has been recorded. Furthermore, Wall Street is still in anticipation of a comprehensive rescue plan for the financial sector. Stocks took a tumble during last week following the announcement by Treasury Secretary Timothy Geithner that he would assess the health of each financial institution and relieve them of their toxic assets by means of the assistance of private investors, but did not give any details as to when and based on what criteria this would be done.
Investors will also no doubt be watching GM and Chrysler with interest, as the two struggling auto making giants are due to submit comprehensive and viable plans to the Government as to how they plan to set their respective companies on the road to recovery. Taking into account the worsening auto sales figures, this will be no easy task and is likely to involve further staff and pay cuts, as well as further assistance from the government and concessions from creditors. The third of the Big Three automakers, Ford, has made it known that it is unlikely to need access to federal loans, but has requested a $9 billion line of credit from the government to fall back on if conditions do not improve.
While many aspects of the economic stimulus package and the original TARP plan still need to be made clear to the public, one aspect that is likely to meet with public approval is the fact that “Golden Parachute” severance packages to top executives employed by TARP beneficiaries have been prohibited, and bonuses to top employees are being capped, thereby ensuring that taxpayer dollars no longer subsidize extravagant Wall Street bonuses.