Wall Street scored a moderate gain after a volatile session yesterday that saw the major indexes ratchet up and down on the seesawing price of oil and mixed feelings about the financial sector.
Concerns about mortgage financiers Fannie Mae and Freddie Mac initially dragged down financials. Wall Street is nervous that the government-chartered companies will need a bailout from the Treasury Department, a move that could wipe out shareholders' equity. Fannie Mae shares tumbled nearly 27 percent, while Freddie Mac shares lost 22 percent.
But because financial stocks have fallen so far over the past few days, some traders appeared to be covering many of their short positions, which drove a large portion of bank and brokerage stocks higher late in the day, said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc. Short-covering is a way to offset a bet that a stock will fall.
Some stocks had turned higher earlier in the day as well after Fannie Mae Chief Executive Daniel Mudd said the concerns about the company's financial position are overblown.
"They haven't offered anything and we haven't asked for anything," Mudd said, referring to the federal government in a public radio interview yesterday morning. "I don't anticipate that they will do that."
Meanwhile, oil prices finished higher, bad news for consumers, but a boost to energy company stocks, which also attracted buying on yesterday.
The Dow Jones industrial average rose 68.88, or 0.61 percent, to 11,417.43 after being down by nearly 60 points and up more than 100. Concerns about inflation and the financial sector led the Dow to post its worst two-day performance since late June on Monday and Tuesday with an overall drop of about 310 points.
Broader stock indicators also ended yesterday with a gain. The Standard & Poor's 500 index rose 7.85, or 0.62 percent, to 1,274.54, while the Nasdaq composite index rose 4.72, or 0.20 percent, to 2,389.08.
Oil, which has rebounded this week after dropping US$35 from its July 11 high of US$147.27, ended up modestly, even after the Energy Department said crude oil inventories rose much more than forecast last week.
Energy costs remain a concern because of their effect on overall inflation. Government reports last week and on Tuesday showed larger-than-expected increases in prices faced by consumers and businesses.
