Dow shoots skyward in heavy trading. After hours, AOL says SEC probing its accounting. Skeptics doubt bottom has been struck. Did handcuffs help stocks?
OK, great. We got a rally. But will it last?
With the Dow Jones industrials shooting up roughly 500 points Wednesday, traders naturally wonder if a so-called market bottom has been struck. The answer, of course, isn’t discernable until far more time has passed.Free money.
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But theories abound. UBS PaineWebber trading veteran Art Cashin, who last night predicted a rally for either today or tomorrow, sees good news and bad news. The bad news first: There was no “climactic” selling that set the stage for the rebound. If there had been, he posits, the market would have “been good all the way to November.”
The good news, though: Cashin figures if the up trend lasts just a couple more sessions, it should be at least a “multiweek affair.”
“It looks like we’re getting more than just a simple turn,” he concluded in an interview with CNBC.
SEC eyes AOL accounting
After hours, AOL Time Warner (AOL, news, msgs) admitted on a conference call that the Securities and Exchange Commission is conducting an inquiry into its accounting. The news sent AOL shares down in extended trading.
AOL also released quarterly earnings, posting a profit and exceeding analyst expectations for both earnings and revenue. However, the company lowered guidance for future performance.
Today’s triggers
In addition to the growing belief that stocks were due for a turnaround, two major events appeared to juice stocks today. One was the literal handcuffing of some alleged corporate perpetrators: Members of the Rigas family, founders of now-disgraced Adelphia Communications, were arrested in plain view. Investors, who had been lusting for such an event in the wake of nearly endless scandal, applauded loudly.
The other event: Well, it wasn’t an event at all -- just a rumor. Word on the Street had it that the Federal Reserve had met secretly to talk about a surprise interest rate reduction.
CNBC’s Steve Liesman noted, though, that “it’s a very long way from market rumors to FOMC movement.” Indeed, CNBC’s Bob Pisani said rumored emergency meetings and rate reductions almost never happen -- even though such rumors emerge repeatedly.
One more minor catalyst for the day’s mood: The House and Senate apparently agreed on a bill that aims to stop corporate fraud.
Skeptics abound
Plenty of market pros remain skeptical.
Investment adviser Terry Bedford told clients early today that “bulls are hardly out of the woods yet . . . We still think that there will be a significant short covering rally but we cannot and will not rule out another test of the lows.”
Earlier today, Pisani said he had spoken to numerous hedge fund managers, who told him they weren’t at all convinced a bottom had been hit. And yet, many were buying stocks. "I'm taking a shot here," they told him.
“It’s nice to see a rally for the first time in a long while," Peter Henderson, a floor trader with Fleet Specialist, told CNBC early today. "I’d like to say this can sustain itself. But to see this thing continue after all the carnage we’ve seen in the past six weeks, we need to see some follow-through . . . I would say it’s more of a technical bounce."
Short-covering clearly played an important role in Wednesday trading. In fact, reported CNBC’s Leslie LaRoche, many traders believe “this short covering may exhaust itself by tomorrow morning.”
Wonderful Wednesday for one Tuesday loser
Many of today’s stock winners, of course, included yesterday’s losers. Chief example: J.P. Morgan Chase (JPM, news, msgs), whose shares rose about 16% after the company held a conference call to say it did nothing wrong in its dealings with bankrupt energy trader Enron. Investors pushed up the stock after the call, despite a less-than-stellar performance by one executive on CNBC this morning.
Neither JP Morgan nor Citigroup (C, news, msgs) (also hit hard yesterday) denies the basic charge of creating financing structures that let Enron camouflage gaping wounds in its balance sheet. But each insists it did no wrong.
“We don’t think they (the transactions) were hiding debt or fooling investors,” Marc Shapiro, vice chairman of J.P. Morgan, told CNBC this morning. “We were told the accounting for the transactions was accurate. We knew about it and we evaluated the company based on the financials they presented to everybody else, and we lost money along with all the other people.”
That line of defense seems unlikely to put investors at ease. It casts the nation’s biggest banks as stooge lenders to anyone willing to sign a loan agreement.
“We do transactions with thousands and thousands of companies,” Shapiro continued. “We are not their accountants. And we are not their directors. We do not have the capability to monitor the company and every transaction.”
In the case of Enron, though, J.P. Morgan seems to have had a pretty good sense of what the client wanted. CNBC’s Liesman read to Shapiro part of a memo from a J.P. Morgan vice president. The bank officer said Enron was hungry for the complicated financing structure J.P. Morgan was offering specifically because it obscured debt.
Shapiro acknowledged that he was aware of the memo, quoting back part of it from memory. His explanation? Many companies do off-balance-sheet financing, and it’s each company’s responsibility to note that in the footnotes of its annual report.
Liesman pointed out that the J.P. Morgan Chase Web site, even now, advertises Enron-style deals with a catch line that says, “We offer balance-sheet relief.”
At the end of the interview, Mark Haines offered Shapiro the last word. He used it to tout J.P Morgan’s stock.
“I think this is a gross overreaction in the stock price,” Shapiro said. “I’m going to be buying this stock today.”
At least one Wall Street analyst agrees. Ironically, Citigroup this morning upgraded J.P. Morgan to “buy” from “market perform.” Dispatch wonders if J.P. Morgan will return the favor.
-- CNBC on MSN Money staff |
