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The “DROWNING” STREET

The US stock market was down more than 3% before rallying as fears for the banking system were calmed.

Stocks had been under heavy selling pressure since the start of the session. Weakness was underpinned by concern that two of the nation’s largest financial services companies, Bank of America (BAC 3.79, -0.14) and Citigroup (C 1.95, -0.56), may have to be taken over by the government. Though a Bank of America spokesman defended the company’s health, concerns remained as Senator Dodd suggested that nationalization of a bank may happen.

Shares of C and BAC fell to new multiyear lows, dragging the financial sector more than 9% lower.

Financials rallied all the way back into positive ground after word surfaced that the White House believes the correct way to run the bank system is through private ownership, which likely helped calm fears of bank nationalization.

There is also speculation Treasury will soon release further details of its financial stability plan, though a spokesperson wouldn’t comment.

Financial stocks were further helped by rumor that bank investor JC Flowers is buying preferred shares in big banks, specifically BAC. BAC was also called one of the best buys ever seen in the NYSE by an analyst on CNBC.

The positive developments induced short-sellers to cover their positions, helping the financial sector turn higher. The broader market rallied in response.

The Dow and the S&P 500 both made their way to the session’s unchanged mark, while the Nasdaq turned positive.

The move proved unsustainable, though. All three major indices finished with a loss. The Dow set a new multiyear closing low; the prior closing low was set Thursday.

The Nasdaq Composite incurred the least severe decline of the headline indices, thanks to support from large-cap tech names. The strength in large-cap tech helped the Nasdaq 100 finish the session 0.4% higher.

Still, financial stocks continue to represent the biggest concern for the broader market, and will continue to do so in the coming week.

Lowe’s (LOW 15.86, -1.12) traded lower after reporting earnings that fell short of estimates, along with downside guidance. JC Penney (JCP 15.10, +0.08) beat earnings estimates, but forecast a deeper loss than analysts are projecting. Their reports received little attention by the broader market.

The January CPI data didn’t contain too many surprises as total CPI was up 0.3%, in-line with expectations, while core CPI was up 0.2% versus the consensus estimate that called for a 0.1% increase. Share volume was high this session.

More than 2 billion shares traded hands on the NYSE this session, but that was largely due to this being an options expiration day.

Tags: dow jones, nasdaq, S&P

1-Feb-2009-Obama Flays Wall Street For Executive Bonuses

The White House is denouncing Wall Street companies that gave billions of dollars in bonuses while also seeking taxpayer bailout funds to stay afloat.

Earlier in the week, New York state comptroller Thomas DiNapoli reported that the securities industry had paid its employees in New York City $18.4 billion in bonuses last year. However, he also noted that due to the recession, this marked a 44 percent drop from 2007 even though the current bonus amount was still the sixth largest on record.

“The American people understand that we’ve got a big hole that we’ve got to dig ourselves out of — but they don’t like the idea that people are digging a bigger hole even as they’re being asked to fill it up,” said President Obama in response to the news on Thursday.

IN INDIA…

In India after L&T, now B K Modi-led Spice Group wants to acquire a 51% stake in Satyam. Market sources said the IT company will be valued at around Rs 5,000 crore. This means, for 51% stake, the acquirer will have to pay over Rs 2,500 crore. A source at Spice said the company will use its reserves of around Rs 2,100 crore, which it got after selling Modi’s stake in Spice Telecommunication to Aditya Birla Group.

Tags: dow jones, nasdaq, US Markets, world news