Doldrums Lift For Financial Stocks

Correction July 17, 2008

We misidentified the bank that reported surprisingly strong earnings. It was Wells Fargo, not Wachovia.

Financial stocks have taken a beating in recent weeks, but they had one of their best days ever Wednesday. Shares of Fannie Mae and Freddie Mac rose 30 percent or more. Stocks also benefited from a drop in oil prices, which have been especially volatile lately.

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But overall the stock market had a welcome turnaround yesterday. All of the major stock indices rose more than 2 percent. And talk about a change of heart, some of the biggest winners were the very same bank stocks that had been plunging only days earlier. NPR's Jim Zarroli reports.

JIM ZARROLI: A little bit of good news goes a long way on Wall Street these days. Yesterday, the big bank Wachovia delivered an unexpectedly strong earnings report. It even said it was raising its stock dividend. [POST-BROADCAST CORRECTION: Yesterday, the big bank WELLS FARGO delivered an unexpectedly strong earnings report.]

Mr. ALFRED GOLDMAN (Wachovia): This sparked a very big rally, in fact the biggest gain in history for financial stocks, which have been so much in the doghouse.

ZARROLI: Alfred Goldman, chief investment strategist at Wachovia Securities, says Wells Fargo stock rose almost 33 percent. And a lot of other big banks, like Citigroup, J.P. Morgan Chase, and Bank of America were swept up as well. Even Fannie Mae and Freddie Mac, which have been in Wall Street's version of the intensive care unit, rose 30 percent or more.

Goldman says because of the housing crisis investors have been so worried about bank stocks that they may have oversold them.

Mr. GOLDMAN: Keep in mind the market is controlled by one thing primarily and that's mood. And the mood had become so extreme that it was really (unintelligible) almost Armageddon in the financial area, which was an extreme exaggeration.

ZARROLI: Also helping stocks was a big drop in oil prices, which have been especially volatile lately. They hit $147 a barrel last Friday, but they ended yesterday at a little above 134.

Jim Zarroli, NPR News, New York.

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