Stocks Surge on Geithner Pick

U.S. stocks surged Friday after word leaked that President-Elect Barack Obama plans to nominate New York Federal Reserve President Timothy J. Geithner as his nominee for U.S. Treasury Secretary.

There were other news items affecting the market Friday, including more fretting about the fates of Citigroup (C) and the U.S. auto industry. But major market indexes remained flat until reports of the Geithner pick arrived, sparking a rebound from Thursday's plunge to an 11-year low.

On Friday, the Dow Jones industrial average jumped 494.13 points, or 6.54%, to 8,046.42. The broad S&P 500 index gained 47.59 points, or 6.32%, to 800.03. And, the tech-heavy Nasdaq composite rose 68.23 points, or 5.18%, at 1,384.35.

On Thursday, by contrast, the Dow had plunged 444.99 points, and the S&P 500 closed at 752.44 -- its lowest level since April 1997. Friday's rally brings the S&P 500 back above its October 2002 lows.

Several market observers said Friday's reaction to the Geithner pick demonstrates a thirst for stronger leadership from Washington.

"There is a void of market confidence," says Bill Larkin, fixed income portfolio manager at Cabot Money Management.

In recent days, as stocks tumbled to levels not seen since the 1990s, many market commentators partly blamed confusing signals coming from Washington. Congress spent the week arguing but failing to agree on a bailout plan for General Motors (GM), Ford (F) and Chrysler. And, current Treasury Secretary Henry Paulson was criticized for shifts in the financial bailout plan.

Stocks rallied on the Geithner pick because "he's the right man at the right time," says Peter Cardillo, chief market economist at Avalon Partners. As president of the New York Fed, Geithner was involved in Paulson's efforts to prop up the financial system, but there's hope he can also improve on the current administration's efforts. Geithner also served as a Treasury undersecretary during the Clinton administration and helped respond to the Asian economic crisis in 1997.

"He has a lot of experience and certainly he knows the canyons of the financial markets," Cardillo says.

"I expect [Geithner] will treat the current situation with the urgency that it deserves," says Ward McCarthy, principal at Stone & McCarthy Research Associates. "I also expect him to be far more creative than Treasury Secretary Paulson."

Financial markets may be reassured Obama didn't choose a fresh newcomer who wouldn't understand the players in the crisis and couldn't hit the ground running, Larkin says. The pick "had to be someone who is currently in the system."

It's expected that Obama will name several key members of his economic team next week. Reports Friday said New Mexico Gov. Bill Richardson is Obama’s pick for commerce secretary.
Trading in stocks was active Friday, a day that November stock options expired. Bonds prices and the dollar index fell Friday, while gold and crude oil futures moved higher.

Also in the headlines, Congress headed home for Thanksgiving, leaving U.S. automakers still struggling for California loans to keep going. General Motors (GM) Friday extended its holiday shutdown and said it would make more production cuts.

Shares of Citigroup (C) fell almost 20% Friday, following Thursday's drop of 26%, its worst one-day percentage decline ever. Initially Citi stock was buoyed Friday by a Wall Street Journal report that Citi was weighing the possibility of auctioning off pieces of the financial giant or even selling the company outright. But chief executive Vikrum Pandit said on Friday he does not want to sell Citi's Smith Barney brokerage unit or break up the troubled bank, based on several news organizations' accounts of a Friday morning conference call with Pandit's staff.

Though the Geithner pick lifted the market's mood, investors have been continually reminded of the weak state of the economy both in the U.S. and globally.

On Friday, European stock markets fell, with major indexes in London, Frankfurt and Paris down 2% or more. Asian markets finished mixed, with Tokyo stocks rising 2.70% and Hong Kong gaining 2.93%, but Shanghai falling 0.72%.

In a speech Friday, a Fed official warned the U.S. economy could stay weak for quite a while. "We likely are in for a protracted period of poor economic performance," Charles Evans, president of the Federal Reserve Bank of Chicago, said.

On Friday, President Bush signed into law an extension of jobless benefits. Earlier in the year, Bush expressed doubts about further benefit extensions, but he came to support the legislation as new figures showed new claims for jobless aid had reached a 16-year high. In what could be its last vote of the year, the Senate approved a measure Thursday that would provide up to three months of extra benefits for those whose unemployment benefits have run out or are about to expire. The House passed the bill in October.

There were no significant economic reports released Friday.

In other U.S. markets Friday, the 10-year Treasury note slipped 1-20/32 to 104-22/32 for a yield of 3.2%, while the 30-year Treasury bond dropped 4-06/32 to 114-12/32 for a yield of 3.69%.

December West Texas Intermediate crude oil futures hovered around the $50-per-barrel mark on Friday, ending up 96 cents at $50.38 per barrel.

December gold futures rose almost 7% to 800.50 per ounce.

What Five Key Stock Market Signals Are Telling Us Now

As U.S. stocks hit new 11-year lows on Nov. 20, many investors say they just don't know what's ahead.

There's a general lack of clarity on a wide range of issues—the state of the U.S. and global economies, problems in the credit markets, the plans of the federal government, and the fate of hedge funds that are being forced to sell off assets. Unfortunately, much of the fog of the financial crisis will not be cleared up anytime soon.

However, there are several key signals that traders, strategists, and fund managers typically watch closely in times of uncertainty. Given the unprecedented environment, it's not clear if any will be a reliable guide this time, but these signals do give investors something to monitor for clues to the road ahead.

Here's a review of five of those signals and what they're saying now:
1. Technical Signals

Technical strategists analyze and predict market activity based on previous market moves. This week, the stock market failed a key test: The broad Standard & Poor's 500-stock index not only fell below its October 2008 lows, but the big-cap benchmark also blasted below its lows during the nasty bear market of 2002.

On the morning of Nov. 20, the S&P 500 briefly tested these 2002 lows in the morning but then rebounded. But late in the day, stocks sank and the S&P 500 closed at 752.44. That's below the index's October 2002 low of 768.63 and the lowest level for the index since April 1997.

The 2002 lows are "a major support level," says Dave Rovelli, equity trader at Canaccord Adams.

Richard Sparks of Schaeffer's Investment Research says "you could see a cascade of selling" if stocks stay way below those prior lows. Before stocks fell to this level, people could "feel comfortable that that is a basement that the market might not go below."
2. Reports from Washington

Michael Yoshikami of YCMNET Advisors criticizes "a general lack of clarity from the Administration [and] federal agencies on what's happening and what the path out is."

On Nov. 20, Democratic congressional leaders said they would delay a vote on a bill to help the U.S. auto industry—efforts some Republicans have opposed—until December. U.S. Treasury Secretary Henry Paulson has raised eyebrows by changing the focus of the financial package a few times. Bush Administration officials are on their way out of office, but President-elect Barack Obama hasn't yet chosen his economic team, whose members would have no real power until Jan. 20 even if they were in place.

This flow of news from Washington is rattling investors, many market watchers say. "No one really has a good idea what the plan really is," says Bruce Bittles, chief investment strategist at R.W. Baird.

Chad Deakins, portfolio manager at RidgeWorth International Equity Fund (SCIIX), says he doesn't expect any clear signals from Washington until Obama takes office. "Until the new Administration comes to the White House and sets a tone and direction, it's hard to see strong upside in the equity markets," Deakins says.

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