U.S. Markets Rebound on Hopes of Revised Bailout Plan Success

While global financial markets continued to fluctuate on Tuesday, U.S. markets rose substantially, gaining back roughly half of Monday’s enormous losses. Analysts believe that this rebound is due in part to expectations that, before the end of the week, Congress will push through a revised bailout plan. These expectations were strengthened when both Presidential candidates made it clear that they are in favor of the U.S. government’s efforts to rescue the financial sector, while President Bush confirmed that Monday’s defeat was by no means the end of the legislative process. Bargain hunters stepping in to take advantage of Monday’s dramatic decline, no doubt also contributed to Tuesday’s improved market performance.

The Dow Jones industrial index gained 485 points, or 4.7 percent, closing at 10,850 on Tuesday, representing the biggest one-day gain that the Dow has experienced in six years. All but one of the Dow’s 30 components ended higher, with blue-chip financials leading the advance. Bank of America climbed by 15.7 percent, while Citigroup gained 15.6 percent and JP Morgan Chase rose by 13.9 percent. Caterpillar Inc was the only straggler with a decline of 0.5 percent. The Standard & Poor’s 500 index rose by 58.34 points, or 5.3 percent, closing at 1,164 with financials such as Washington Mutual and Sovereign Bancorp leading the gains. The Nasdaq Composite climbed 98.6 points, or 5 percent, to close at 2,082 on Tuesday. The New York Stock Exchange’s trading volumes exceeded 1.6 million, with advances outweighing declines by more than 4 to 1. More than 964 million shares traded on Nasdaq, with advancers and decliners more or less even.

The bill that was rejected by the House of Representatives on Monday has been revised and the Senate is set to vote on the modified bailout plan on Wednesday evening. If approved, the U.S. federal government will have the go-ahead to buy troubled mortgage-related investments from financial institutions, thereby restoring their lending powers in an effort to thaw the economy’s credit freeze. While the debate on the proposed bailout rages on, with much of the blame being laid at the feet of failing companies’ CEOs and the so-called fat-cats of Wall Street, the fact remains that with the U.S. credit market virtually frozen, businesses are going to have difficulty buying, putting growth prospects at risk and resulting in job losses and a stagnating economy.