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By Jennifer Yousfi
News that Standard & Poor’s had decided to maintain AAA ratings for both MBIA Inc. (MBI) and Ambac Financial Group Inc. (ABK) sent the Dow Jones Industrial Average up almost 200 points by New York’s close yesterday (Monday).
“It was taking MBIA and Ambac off credit watch by S&P – both names rallied and are taking the whole market with them,” Art Hogan, chief market strategist at Jefferies & Co., told MarketWatch.
At the close, the three major U.S. stock indices had all posted gains of more than 1%. The blue-chip DJIA increased 189.28 points (1.53%), to close at 12,570.30. The tech-laden Nasdaq Composite Index gained 24.13 points (1.05%), to reach 2,327.48. And the broader Standard & Poor’s 500 Index rose 18.30 points (1.35%), to settle at 1,371.41.
Sectors were up across the board on the strength of the market’s gains with energy [up 2.02%] and capital goods [up 1.57%] the biggest gainers.
Together, MBIA and Ambac insure $1.2 trillion in debt. The ratings for bond insurers have been shaky for months, but Standard & Poor’s decision gave investors new-found confidence.
“People are breathing a sigh of relief and jumping back in again,” Peter Kovalski, who manages financial services stocks at Purchase, New York-based Alpine Woods Capital Investors, told Bloomberg News. “All financials that would’ve been vulnerable to a meltdown in credit markets rebounded on this news.”
The financial sector gained 1.37% for the day. MBIA shares rose $2.40 [19.70%] to close at $14.58. Ambac shares rose $1.70 [15.87%] to close at $12.41.
Earlier in the day yesterday, stocks rallied on data from the National Association of Realtors that existing home sales fell only 0.4% in January. While it marked the slowest pace since data started being tracked in 1999, it managed to beat expectations and provide some hope that the housing slump might be approaching its bottom. However, with inventories still high, a further reduction in prices seems likely.
“Sales are so low that a bottom seems to be in sight,” wrote Joel Naroff, chief economist for Naroff Economics Advisors in a note to clients. “That cannot be said about prices.”
In overseas markets, Japan’s Nikkei Index surged over 3% with a gain of 414.11 points to close at 13,914.57. Hong Kong’s blue-chip Hang Seng Index posted a slight loss of 35.90 points to close at 23,269.14.
Japan’s Nikkei reached a six-week closing high based on reports that Chinese sovereign wealth funds are expected to invest as much as $10 billion in Japanese stocks.
“The next target will be whether the Nikkei is able to touch 14,000, but that will still depend on the outlooks for economic health and next year's earnings,” Fujio Ando, senior managing director at Chibagin Asset Management, told Reuters.
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