Federal Reserve Board Chairman Ben Bernanke testified on Capitol Hill this afternoon, saying the recession would end this year.
NEW YORK — Federal Reserve Chairman Ben Bernanke has given Wall Street a double dose of reassurance. Now it's President Barack Obama's turn.
Bernanke told Congress on Tuesday the recession might end this year, and that regulators aren't planning to nationalize banks. The news alleviated some of investors' worries about the economy and the banking industry, and lifted the Dow Jones industrial average and Standard & Poor's 500 index off their lowest levels since 1997.
The Dow rose 236.16, or 3.32 percent, to 7,350.94 for the day.
Investors are hopeful that Tuesday night, Obama will provide specifics about his plans to stabilize the financial system and further stimulate the economy. Anticipation of his remarks helped drive beaten-down financial shares up sharply.
"There's growing optimism that Obama can deliver the details that the market is so desperately looking for in his speech," said Ryan Larson, senior equity trader at Voyageur Asset Management. If it gets those details, Larson added, the market's upward momentum could continue.
Stocks remain on shaky ground, however. Bernanke may have helped stem the market's slide Tuesday, but the market also found stability from temporary technical factors: bargain-hunting, the unwinding of short bets, and selling exhaustion after six straight down days for the S&P 500.
And though it appears the government is trying to quash the notion of bank nationalization, the Obama administration still has not demonstrated how exactly it will repair the banking system. The nation's financial system remains "zombie-like," said Nick Kalivas, vice president of financial research at the brokerage MF Global.
"We had an up day today, but nothing has really changed on that front," Kalivas said. "If nothing is articulated on that tonight, we're moving to the downside again."
The continued focus on the stability of the financial system comes a day after the government moved closer to dramatically expanding its ownership stakes in the nation's banks, including Citigroup Inc. The Treasury Department, the Fed and other banking regulators said Monday they could convert the government's stock in the banks from preferred shares to common shares.
On Monday, the major indexes tumbled more than 3 percent, including the Dow, which fell 251 points and hit its lowest close since May 7, 1997.
Broader stock indicators also rebounded Tuesday. The S&P 500 index rose 29.81, or 4.01 percent, to 773.14. On Monday, it logged its lowest finish since April 11, 1997.
The Nasdaq composite index rose 54.11, or 3.90 percent, Tuesday to 1,441.83, while the Russell 2000 index of smaller companies rose 17.90, or 4.54 percent, to 412.48.
Advancing issues outnumbered decliners by about 6 to 1 on the New York Stock Exchange, where volume came to 1.84 billion shares.
In his semiannual report to the Senate Banking Committee, Bernanke predicted the economy is likely to keep contracting in the first six months of 2009, but that "there is a reasonable prospect" the recession will end this year.
He warned that a recovery will require getting credit and financial markets to operate normally, and that the government must continue working with ailing banks to bring them back to profitability. To the market's relief, though, the Fed chief said formally nationalizing the banks "just isn't necessary."
Traders were encouraged that the S&P 500 index has so far managed to stayed above its Nov. 21 trading low of 741.02. Investors searching for a recovery look for signs that market can test its lows from the worst of the credit crisis and then bounce higher.
Still, many analysts expect the market to remain volatile for the foreseeable future.
Rich Hughes, co-president of Portfolio Management Consultants in Los Angeles, said the market's rallies are likely to be based on hope or on rebounds from selloffs. He contends Wall Street still hasn't seen the wrenching decline that is often needed to scare investors from the market and set the ground for a lasting recovery.
"The underlying fundamentals just aren't there to support anything that's sustainable right now," Hughes said. "We haven't seen the capitulation that you'd want to see before you'd get thoroughly enthused."
The market's slide has been tough on long-term investors. A person who in 1997 put $50,000 in a fund that tracks the S&P 500 would now only have about $46,256.
Bond prices fell Tuesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.80 percent from 2.76 percent late Monday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.31 percent from 0.29 percent Monday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude rose $1.52 to $39.96 per barrel on the New York Mercantile Exchange.
Home Depot posted a loss but the nation's largest home improvement retailer's results topped expectations when excluding costs for shutting four home-improvement brands. The stock rose $1.96, or 10.5 percent, to $20.67.
Target Corp. and Macy's Inc. said fiscal fourth-quarter earnings fell sharply as shoppers cut back on purchases. Office Depot Inc. posted a loss for the quarter. Target fell 60 cents to $27.83, while Macy's rose 89 cents, or 12 percent, to $8.29.
Two big drags on the Dow this year — Citigroup and Bank of America Corp. — regained ground Tuesday. Citigroup rose 46 cents, or 22 percent, to $2.60, and BofA rose 82 cents, or 21 percent, to $4.73.
Another bank in the Dow, JPMorgan Chase & Co., rose $1.51, or 7.74 percent, to $21.02 after announcing late Monday it would slash its quarterly dividend to 5 cents from 38 cents in a move to save $5 billion a year.
The only loser in the Dow Tuesday was Microsoft Corp., which dipped 4 cents to $17.17 after it reiterated its belief that the economic crisis will persist at least into the second half of 2009.
Stocks fell in Asia and Europe following Monday's drop on Wall Street. Japan's Nikkei stock average fell 1.5 percent, Britain's FTSE 100 fell 0.78 percent, Germany's DAX index fell 0.73 percent, and France's CAC-40 fell 0.73 percent.