Monday’s Recap: Great Day For Stock Markets

Great day for the markets today as the government released their plan to save Freddie Mac (FRE) and Fannie Mae (FNM). The Treasury Department announced they were willing to put up as much as $100 billion into each company to ensure the companies do not go broke. The government will receive senior preferred stock for the money they put into the companies. The government will initially be given $1 billion in stock from both Fannie Mae and Freddie Mac and will receive warrants equaling a 79.9% stake in each company. This stock will pay 10% interest and continued stock purchases will continue if quarterly audits discover that either of the companies’ capital falls below certain levels.

Together Freddie Mac and Fannie Mae own half the nation’s home loans, about $5 trillion, and have lost nearly $14 billion this past year and are expected to pile up billions more in loses until the “grey skies” of the housing market clear up. Analysts expect mortgage rates to fall from its current national average of 6.35% to as low as 5.5% since the government is backing the mortgage.

The Dow Jones Industrial Average (^DJI) jumped 289.78 points or 2.58% today as investors’ concerns were eased with the government takeover of Fannie Mae and Freddie Mac. The Dow closed at 11,510.74 and should continue to see some of the positive effects of the news in early trading tomorrow. The Nasdaq (^IXIC) rose 0.62% or 13.88 points to close at 2,269.76 fueled by a good day in the technology sector, which took a big hit last week. The S&P 500 (^GSPC) closed today at 1,267.79, up 25.48 points or 2.05%, shaking off last week’s subpar performance.

Oil prices fell early in intraday trading, but ended at $106.50 per barrel, up $0.27 or 0.25% as the initial report that hurricane Ike would miss the Gulf Coast was changed by meteorologists, who expect Ike to hit the Gulf Coast but will be less powerful. This snapped oil’s streak of declines, as crude has fallen nearly 27% or $40 since July’s record high. The average price for a gallon of gasoline was $3.658 today.

The Dollar continued to gain strength against other major currencies and is currently trading at 0.7068 vs. the Euro and 108.42 vs. the Yen. The Dollar is trading at its highest rate to the Euro since October 2007. The 10 year Treasury note stayed flat from Friday, at 3.660%. Gold fell 0.01% or $0.10 today to settle at $797.50 per ounce falling for the sixth straight trading session as the strengthening Dollar has caused many commodities to fall over the past few weeks.

The Federal Reserve announced today that consumer borrowing grew at rate of 2.1% annually in the month of July, the smallest growth rate since December 2007. This growth equated to an increase of $4.5 billion. Analysts expected a credit increase of $8.8 billion. Auto loans fell to a growth rate of 0.5%, declining drastically from June’s growth rate of 6.1% and credit card loans increased by 3.5% in July versus a 3.5% growth rate in June. Analysts attribute the increased growth in credit card loans to the fact that banks have tightened their lending standards. Many analysts are also concerned about future growth rates as the economic stimulus package continues to wear off.

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