Financial stocks tumbled early Friday on news of a major securities fraud case and fears that the U.S. auto industry will collapse, but the stocks rebounded in afternoon trading to finish the week on a positive note.
The KBW Bank Index rose 1.5% Friday, a day after shedding 9%. The Dow Jones industrial average rose 0.8%, and the Standard & Poor's 500 rose 0.7%.
After the markets closed Thursday federal officials accused Bernard Madoff, a fixture on Wall Street for five decades, of using his firm, Bernard L. Madoff Investment Securities LLC, to orchestrate a sweeping Ponzi scheme that could cost a wide range of investors $50 billion.
Investor worries were compounded early Friday when it appeared as if major automakers might seek bankruptcy protection, resulting in massive layoffs that could rock the economy. The markets traded in the red much of the morning as a result.
Sentiment rebounded when the Bush administration, which previously had said the Treasury Department's Troubled Asset Relief Program should be used only to aid the financial sector, said it would support using the money to bail out the auto industry.
The administration shifted its position after a relief package for Detroit's Big Three automakers failed in the Senate late Thursday.
"Bankruptcy in Detroit would no doubt be a negative shock to the economy," Scott Anderson, a senior economist at Wells Fargo & Co., said in an interview Friday. "And we don't need another shock."
JPMorgan Chase & Co. gained 3.3%, U.S. Bancorp rose 4%, Citizens Republic Bancorp in Flint, Mich., climbed 8.9%, and Sterling Financial Corp. in Spokane climbed 9.5%.
Investors welcomed a shake-up at SunTrust Banks Inc., pushing up its shares up 1.1% Friday. The Atlanta company said James M. Wells 3rd had relinquished his position as its president but would remain the chairman and chief executive. William H. Rogers Jr., 51, was promoted to president. He was previously corporate executive vice president of the wholesale, mortgage, wealth, and investment management businesses.
Economic data released Friday amplified the auto industry's woes but suggested the holiday shopping season might prove a modest success.
The Commerce Department said weak auto sales and low gasoline prices drove U.S. retail sales down 1.8% last month; excluding gas-station and auto transactions, retail sales climbed 0.3%.
The Labor Department said wholesale prices fell 2.2% in November, indicating that inflationary pressures are virtually nonexistent.
Analysts said bank stocks will remain under pressure until the credit markets improve notably and investors can absorb and make sense of fourth-quarter results.
"Fourth-quarter earnings and credit trends could be demonstrably worse than what we've already seen," Anthony Davis, an analyst at Stifel, Nicolaus & Co. Inc., said in an interview Friday. "If that's the case, there's really nothing to suggest that we're out of trouble yet."