U.S. stocks rallied today as the U.S. government said it would back troubled Citigroup Inc. with $20 billion in fresh capital and the guarantee of $306 billion in mortgage-related assets.
The Dow Jones industrial average gained nearly 900 points over the past two sessions on news of President-elect Barack Obama's choice for his economic team.
The Dow Jones industrial average closed up 396.97, or 4.93%, at 8,443.39; the S&P 500 rose 51.78, or 6.47%, closing at 851.81; and the Nasdaq composite was up 87.67, or 6.33%, to close at 1,472.02. All numbers are preliminary.
The market also was buoyed by President-elect Barack Obama’s announcement of his economic team.
The news that Mr. Obama would appoint Timothy Geithner as Treasury secretary helped spark confidence among investors who pushed the DJIA up almost 900 points in two sessions.
“The market hates uncertainty and is now reassured that the new administration already has a team in place,” said David Resler, chief economist at Nomura Securities International.
Mr. Obama said of the economic recovery efforts, “That work starts today because the truth is, we don’t have a minute to waste.”
In a joint statement late Sunday, the Federal Reserve, the U.S. Treasury and the FDIC said they “will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate.
Citigroup will issue preferred shares to the Treasury and FDIC. If necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool.”
“Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for preferred stock with an 8% dividend to the Treasury,” the statement also said.
The “too big to fail” bank already received a $25 billion capital injection in October under the TARP. Citigroup shares traded higher at the market open.
The market shrugged off more negative economic news as existing home sales fell by 3.1% in October, while year-over-year prices fell 11.3%, the most ever, according to the National Association of Realtors.
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