A combination of bargain hunting and investor confidence that Congress will revive the failed $700 billion government bailout plan in some fashion helped U.S. stocks rebound in early trading on Tuesday after their historic sell-off on Monday.
The failure of legislators to pass the much-anticipated economic rescue package Monday sent share prices tumbling sharply, with the Dow Jones industrial average suffering its biggest one-day point drop in history 777.68 points. The 7% loss was the worst one-day percentage drop since stocks resumed trading after the Sept. 11, 2001, terrorist attacks. The broader S&P 500 slid 106.85 points, or 8.8%, to 1,106.42 while the Nasdaq composite index lost 199.61 points, or 9.1%, to 1,983.73, its first close below 2,000 since May 2005.
In morning trading on Tuesday, the Dow was ahead 212.10 points, or 2.05%, to 10,577.55, the S&P 500 gained 28.66 points, or 2.59%, to 1,135.05 and the Nasdaq composite bounced 42.54 points, or 2.14% higher, to 2,026.27.
From here, investors will attempt to assess what the end game will be, said Paul Niven, head of asset allocation at F&C Asset Management in a statement. Money markets are highly dysfunctional and the huge injections of liquidity seen in recent days ($630 billion on Monday) seem to have had little impact as banks continue to hoard cash and perceived counterparty risk remains extremely high.
A survey from research firm Greenwich Associates, issued late Monday, found that more than 60% of the more than 900 institutional investors polled backed the bailout plan, which is also known as the Paulson plan after Treasury Secretary Henry Paulson.
If the vote on the bailout had been held among the institutional investors and companies that rely on functioning financial markets to conduct their business instead of in the U.S. House of Representatives, it would have passed, Greenwich consultant Steve Busby said in a news release.
Nearly two-thirds of survey respondents said they believe some form of government intervention will be required to shore up markets, according to Greenwich.
Less than a quarter of respondents say they are confident that the free market can correct itself, Greenwich consultant Peter DAmario said in the release. But at 23%, respondents in North America have more faith in the free market than their peers in Europe, only 13% of which say they have confidence that the market can right itself on its own.
After Monday's vote failure, Congress adjourned for the Jewish holiday of Rosh Hashanah and will reconvene at noon on Thursday.
Over the last six days, Greenwich surveyed 905 institutional investors, large companies and pension funds in North America, Europe and Asia.
Contact Gregory Crawford at [email protected]