Stocks erase gains after House vote
The Dow gives up 313-point advance after $700 billion bailout is passed on second try.
By Alexandra Twin, CNNMoney.com senior writer
Last Updated: October 3, 2008: 2:53 PM ET
NEW YORK (CNNMoney.com) -- Stocks erased most of the session's gains Friday afternoon as investors took a 'buy the rumor, sell the news' reaction to the House approval of a $700 billion bailout bill.
Credit markets remained frozen, despite the vote, with two measures of bank jitters rising to record highs. Investors also looked to Wells Fargo's planned purchase of Wachovia and a dismal job market report.
The Dow Jones industrial average (INDU) gained a few points with about an hour left in the session. It was up 313 points, then turned negative before bouncing back.
The Standard & Poor's 500 (SPX) index added a few points and the Nasdaq composite (COMP) rose 0.2%.
Wall Street rallied ahead of the vote as investors bet that the House would pass the modified version of the bill after rejecting the initial proposal Monday. But stocks retreated after the House voted 263-171 to pass the bailout bill, perhaps in a classic 'buy the rumor, sell the news' response, analysts said.
In addition, the prolonged road to the passage probably took the wind out of any market advance, said Ted Weisberg, NYSE floor trader at Seaport Securities.
"We went through a torturous political theater route to get to what was ultimately the right thing for Congress to do," Weisberg said.
He said that while the bill is in the best interest of Wall Street and Main Street, it isn't a light switch that will suddenly solve the economy's problems. The economy remains weak, as demonstrated by the September job report issued earlier in the day.
"This bill should hopefully result in more confidence in the financial markets, but now that it's been passed, the hard work begins," Weisberg said. "I think that is what the stock market is trying to tell us today."
Stocks tumbled Thursday, with the Dow off 348 points as frozen credit markets increased fears ahead of the House vote. The House's failure to pass the bill Monday sent the Dow down 777 points, in its worst single-day point loss ever.
Lawmakers rewrote the bill to include certain provisions the House had wanted and the Senate approved the new version of the bill 74-25 Wednesday night.
President Bush said that he will sign the legislation before leaving Washington later Friday.
Critics say the bill will help the financial market, but won't do much for the ailing economy. Supporters say that without the bill, the financial market crisis would escalate and intensify the economic slowdown.
Issues specific to the financial markets and broader economic issues have been merging over the last few months, said Stephen Stanley, chief economist at RBS Greenwich Capital.
He said that even with the bill in place, consumers are going to continue having problems getting auto loans, home loans and other forms of credit for a while.
