Obama Picks Tim Geithner to Head Treasury

This is one of those things that is going to turn out to be really really good or really really bad move. It will surely be interesting to see what Tim Geithner's first move will be once he is active in his role to turn around the stumbling economy. After watching what the market has been doing for the past few weeks, he will surely have one of the toughest jobs in the country. But if he can turn it around he can probably be elected president after Obama has had his term.

U.S. stocks rallied and the Standard & Poor’s 500 Index rebounded from an 11-year low after President-elect Barack Obama picked New York Federal Reserve Bank chief Timothy Geithner to head the Treasury.

“This news could really give the stock market a badly needed shot in the arm,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, wrote in an e-mail to clients. Geithner is a “fantastic choice to help lead the financial markets out of the wilderness.”

Citigroup Inc. pared a 35 percent slide and JPMorgan Chase & Co. trimmed a 16 percent tumble in the final hour as a Democratic aide said Obama will name Geithner to replace Henry Paulson. National-Oilwell Varco Inc. and Chesapeake Energy jumped more than 20 percent as oil rose for the first time in six days. The rally came after this week’s rout dragged the S&P 500’s price-to-earnings valuation to the cheapest since 1995.

The S&P 500, which capped a third-straight weekly decline, surged 6.3 percent to 800.03. The Dow Jones Industrial Average rose 494.13 points, or 6.5 percent, to 8,046.42, while the Nasdaq Composite Index added 5.2 percent to 1,384.35. Almost five stocks gained for each that fell on the New York Stock Exchange.

Benchmark indexes swung between gains and losses earlier as growing concern over the survival of Citigroup, the second- largest U.S. bank by assets, offset a rally in commodities producers. Some 2.4 billion shares changed hands on the floor of the NYSE in the busiest trading session since Oct. 10. Citigroup accounted for about 11 percent of all trading volume of NYSE- listed stocks.

2008 Slump

The S&P 500 extended its 2008 slide to 49 percent yesterday and was poised for the worst annual decline in its 80-year history after economic reports depicted a deepening recession and lawmakers postponed a vote on a plan to salvage the auto industry. Citigroup, which has about $2 trillion of assets, has fallen for nine of the last 10 days on concern more companies and consumers will default as the economy worsens.

The benchmark index for U.S. equities trimmed its yearly loss to less than 46 percent today, which would still make 2008 the worst year since 1931. The S&P 500 tumbled 8.4 percent this week. The Dow average declined 5.3 percent, while the Nasdaq Composite Index lost 8.7 percent.

Chesapeake, a producer of oil and natural gas, jumped $2.99 to $16.97. National-Oilwell, which makes crude production equipment, added $3.66 to $21.52.

Energy Rally

Exxon Mobil Corp., the largest U.S. oil company, climbed $7.30, or 11 percent, to $75.81. Crude oil rose as OPEC members cut production and governments stepped up efforts to revive economic growth. Gasoline futures climbed for the first time this week as U.S. buyers took advantage of low prices and a weaker U.S. dollar increased the lure of dollar-denominated commodities. Oil for January delivery rose 46 cents, or 0.9 percent, to $49.88 a barrel.

S&P 500 energy companies rose 12 percent collectively for the top gain among the index’s 10 main industries. The advance came after the group’s valuation slid to 5.6 times reported earnings, the cheapest since Bloomberg began tracking the data.

Citigroup pared declines, falling 94 cents to $3.77 after sinking as low as $3.05, and the S&P 500 Financials Index erased a 7.5 percent tumble to climb 3.4 percent on word of Obama’s pick for Treasury secretary.

Geithner has helped lead U.S. efforts to combat the deepest financial crisis in seven decades, helping oversee the decisions this year to intervene in American International Group Inc., rescue Bear Stearns Cos. and leave Lehman Brothers Holdings Inc. to fail.

‘Fresh Face’

“The market is relieved that it’s Geithner,” said Tim Hartzell, managing director and chief investment office at Sequent Asset Management in Houston. “It’s important to have a fresh face come in who has also been in the mix and has been at the pinnacle of everything that has been going on.”

Citigroup’s earlier slide came as Chief Executive Officer Vikram Pandit said he won’t break up the company after the stock market rout erased more than 80 percent of its value this year. Pandit and Chief Financial Officer Gary Crittenden, speaking on a worldwide conference call, also said they don’t expect to sell the Smith Barney brokerage unit, according to two people who listened to the call and declined to be identified because it wasn’t open to the public.

Citigroup will probably get rescued by the U.S. government after a crisis in confidence erased half its stock-market value in three days, investors and analysts said. The stock climbed 6.1 percent to $4 in trading after the close of U.S. exchanges.

JPMorgan, the largest U.S. bank by market value, pared a drop of $3.69 to close down 66 cents at $22.72.

Gap Surges

Gap Inc. rallied $2.59, or 27 percent, to $12.10. The largest U.S. clothing retailer said third-quarter profit climbed 3.4 percent as the company reduced markdowns of sweaters, jeans and khaki pants. The owner of the Old Navy and Banana Republic chains reiterated its forecast for profit of $1.30 to $1.35 a share for the year ending Jan. 31.

Sprint Nextel Corp. climbed 25 percent to $1.71 and earlier soared 36 percent, the most since at least 1980. Barry West, chief technology officer of the third-largest U.S. mobile phone company, bought 50,000 Sprint shares, marking the biggest investment at the company in the past five years, Barron’s reported.

Microsoft Corp. jumped $2.15, or 12 percent, to $19.68 after Oppenheimer & Co. raised the world’s largest software maker to “outperform” and said the stock has fallen too far. The shares trimmed their yearly decline to 45 percent.

Alcoa Jumps

Alcoa Inc., the biggest U.S. aluminum producer, surged 23 percent, the most since at least 1980, to $8.44. Newmont Mining Corp. jumped 25 percent to $28.79. Copper and aluminum rebounded from three-year lows on speculation mine shutdowns will help erode supply surpluses caused by reduced demand.

All 10 industries in the S&P 500 advanced at least 3.3 percent and 28 of 30 stocks in the Dow average rose.

Autodesk Inc. fell $2.45, or 15 percent, to $14.37. The largest maker of engineering-design software said fourth-quarter earnings excluding some items will be as much as 34 cents a share. That missed the 54-cent average estimate by analysts in a Bloomberg survey.

This year’s tumble in the S&P 500 dragged down 97 percent of its stocks and all 64 of its so-called level-three industries, groups such as “distributors” and “leisure equipment,” as of yesterday’s close. More stocks decreased in the current bear market than in the 49 percent rout after the technology bubble burst in 2000.

‘Irrational Exuberance’

Alan Greenspan can stop worrying about “irrational exuberance” in the U.S. stock market, 12 years after he warned investors that share prices were rising too fast. The S&P 500 fell below 744.38 today, its closing level on Dec. 5, 1996, the day then-Federal Reserve Chairman Greenspan used the phrase in a speech on “The Challenge of Central Banking in a Democratic Society.”

The S&P 500 was trading for 20.7 times earnings when Greenspan gave his warning and its valuation climbed to as high as 62.9 in March 2002, according to Bloomberg data. The index was valued at 16.3 times reported profits of its companies at yesterday’s closing level, the cheapest since 1995.