Markets Extremely Volatile On Tuesday As Treasury Announces 10 Financial Institutions Will Repay TARP

The markets were very volatile today, with a late rally sending the indexes near where they opened.  The Dow Jones was the only major index down, closing at 8763.06 down 0.02%.  The NASDAQ and S&P were both up closing at 1860.13 and 942.43 respectively, up 0.96% and 0.35%.  The 10-year saw prices fall as the yield ended at 3.862%.  Crude oil reached over $70 for the first time in seven months settling at $70.01, with August gold up on a declining US dollar, settling at $954.70.

The big news of the day came from financials, as it was announced that the Treasury Department will allow ten financial institutions to repay TARP funds, which will allow the banks not to follow the government’s rules on executive compensation and dividends.  JP Morgan (JPM), Goldman Sachs (GS), Morgan Stanley (MS), American Express (AXP), Bank of New York Mellon (BK), State Street (STT), US Bancorp (USB), BB&T (BBT), Capital One Financial (COF), and Northern Trust (NTRS) were the ten banks that will repay $68.3 billion that they received from the government.  This is good news for the market, as the government allowing these banks to repay money shows investors that the worst is probably over and though the future will not be easy for these banks, they will be able to survive.  The repaying of TARP further emphasizes the strength of the ten banks that are doing so, over the nine that are still using TARP funds.  Without the limitations imposed by the TARP funds, these banks may have a leg up over the competition as executive compensation will possibly attract more talent to their investment banking divisions.  Goldman Sachs and Morgan Stanley are probably going to use this as a strong recruiting tool over rivals Citigroup (C) and Bank of America (BAC) owned Merrill Lynch, who did not repay TARP funds.

Leading the NASDAQ up today was semiconductors, which rallied on news from Texas Instruments (TXN) that it changed its earnings forecast.  TXN said that they expect revenue between $2.3 and $2.5 billion, compared to the previous forecast of between $1.95 and $2.4 billion.  The semiconductor company also raised earnings per share estimates form a range of $0.01 to $0.15 per share to the new range of between $0.14 and $0.22 per share.  TI vice president, Ron Slaymaker, said that said that the biggest driver for the growth is analog, but that all products are growing also. This though does not necessary signal a bottom in semis as demand is still reduced and a pickup in demand is not clearly seen.  Intel (INTC) and AMD (AMD) both traded up on Texas Instrument’s news; Texas Instruments reports second quarter results June 30.

US Steel (X) saw its share price rise over 7% today on news that an analyst from Morgan Stanley upgraded it from “Equal-Weight” to “Overweight’.  US Steel has been hurt during the economic decline as steel prices fell due to a decline in steel demand as construction fell and auto production slowed.  The analyst from Morgan Stanley said that they expect production in domestic steel mills to rise from the recent 46% production rate to 65% in the second half of 2009.  The analyst expects demand to be driven by better demand for autos and increased manufacturing in the third quarter.  US Steel has also benefited recently from improving material prices as many believe that demand will increase by the end of the year as the economy improves.

Check back tomorrow for another Market Recap from Bullish Bankers.

Disclosure: The fund the author is associated with is long GS and JPM.

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