After losing 7% of it’s value yesterday, the stock market regained a good portion of it today:
NEW YORK (CNNMoney.com) — Stocks rallied Tuesday, with the Dow jumping 485 points on bets that Congress will pass a version of the government’s $700 billion package, following Monday’s crushing defeat.
But credit markets remained frozen. Several closely watched measures of bank lending fear hit all-time highs, as firms continued to hoard funds.
The Dow Jones industrial average (INDU) added 485 points, recovering much of the record 777 points lost the day before. It was the third-biggest one-day point advance for the indicator in its history.
The Standard & Poor’s 500 (SPX) index rose 5% and the Nasdaq composite (COMP) gained about 5%.
There are likely several factors in play in the market right now. First, traders are likely still assuming that a bailout package of some kind will eventually make it’s way through Congress — if that doesn’t happen then things could change drastically. Second, there was likely a lot of bargain hunting going on by those who look beyond the daily stock page for financial advice. And, finally, there’s at least some indication that measures much cheaper than Henry Paulson’s $ 700 billion idea are coming in to place to shore up the banking system:
Stock gains accelerated late in the day after the FDIC – the agency that insures depositors in case of a bank failure – said it wants to increase the amount of money it can insure.
Raising the limits could make businesses and individuals less anxious to withdraw money from accounts at a struggling bank. It could also help get the $700 billion plan passed by mollifying critics who think the plan is too focused on Wall Street, rather than Main Street.
At around the same time, the SEC and FASB – which monitors accounting standards – said it will announce guidance later this week on how financial companies can use fair-value accounting, which some have blamed for the escalation of the liquidity crisis. Fair value, or mark-to-market accounting, says all assets have to be valued at what price they could be sold at immediately. When a company that is struggling sells assets cheap to raise money, it drags down prices for the overall market.
Some critics have said temporarily suspending this rule would help the market for such securities gradually move higher. The failed version of the $700 billion bill alluded to the potential for changes in those accounting rules.
The biggest factor influencing the markets right now, though, is the fact that nobody seems to know what’s going to happen next.
And that’s dangerous.