By Kate Gibson
The stock market's pattern of tentative moves Wednesday came as
equity investors offered a warmer greeting to the Obama
administration's plan to help struggling home owners than that
given to other recent government moves to shore up the economy.
"When presidents and secretary of states speak the markets go
down, and after this speech, the market is up, so that's positive,"
said Doug Roberts, chief investment strategist for
ChannelCapitalResearch.com, referring to President Barack Obama's
afternoon address in Mesa, Ariz. -- an area hit hard by
foreclosures.
"Only time will tell whether this plan will provide sufficient
relief to get the housing market on its feet," said analysts at
Action Economics.
It's worth noting, however, that U.S. equity moves have been
mostly in a narrow range in Wednesday's action. Investors also
played off remarks by Federal Reserve chief Ben Bernanke.
"The devil is in the details, but in broad strokes this sounds
much better than the financial-stability plan and the
fiscal-stimulus plan," Roberts said of Obama's housing program.
Dan Greenhaus, an analyst with the equity strategy group at
Miller Tabak & Co., agreed.
"It's important to announce specific dates and specific monetary
quantities to give the market a firm handle on how much he intends
to do and when he intends to do it," Greenhaus said.
Earlier Wednesday, the administration released some details of
its $75 billion program aimed at slowing foreclosures. It holds the
potential to help as many as 9 million "at risk" homeowners, by
some estimates.
The program's funding is larger than the $50 billion that had
been speculated, said Greenhaus.
At the same time, the government's plan to subsidize the
reduction of mortgage rates begs the question of "how to separate
those that took unnecessary financial risk or those families
strained by reduced income or loss of jobs entirely," said
Greenhaus.
"In the case of the latter, I don't think anyone would argue
against helping those people. In the case of the former, there is
the real threat of moral hazard."
The delivery of details regarding the administration's
foreclosure-mitigation program stands in contrast to what happened
with Treasury Secretary Timothy Geithner last week. Geithner's
strategy for straightening out the U.S. banking industry got widely
panned by investors, who found it lacking in specifics.
After slipping to three-month lows during Tuesday's session,
equities wavered between modest gains and losses as market bears
and bulls battled it out. The Dow Jones Industrial Average (DJI)
lately was up 9.8 points at 7,562.4.
Information-technology shares paced the gains as the S&P 500
(SPX) climbed fractionally to stand at 789.38, and the Nasdaq
Composite (RIXF) added 3.59 points to 1,474.25.
Financials turned tail on early losses, with real estate
investment trust Developers Diversified Realty (DDR) among those
gaining, recently up nearly 7%.
While the banking sector would likely benefit from any plan
bolstering the embattled housing market, the help would not be in
the same direct fashion that would come if the government stepped
up with a specific plan for troubled assets, said Greenhaus.
If the housing plan works, the housing sector and ancillary
sectors including home improvement and construction would stand to
benefit, said Greenhaus, pointing to Home Depot Inc. (HD) and
Lowe's Cos. (LOW).
"Anything that makes housing materials, like furniture companies
and those that make gardening equipment. Some of these sectors have
been hit very hard; if you see a rebound in housing there is a
whole different series of ways to play," Greenhaus said.
At a macro level, the analysts at Action Economics sounded a
sober note, saying: "We are skeptical that it will be the quick
spark needed to stem foreclosures given the overwhelming weakness
in the economy, the further downdraft in home prices, and the
erosion in the labor market, while moral-hazard issues could make
for unintended consequences that delay the correction in
housing."