Wall Street advanced Monday as expectations for an interest rate cut from the Federal Reserve and an uptick in pending home sales helped offset concerns about another round of subprime mortgage-related losses. The Dow Jones industrials gained more than 100 points.
Investors remained upbeat ahead of the Fed’s rate-setting meeting on Tuesday. Policymakers are broadly expected to lower rates, though economists are still split over whether there will be a quarter-point cut or half-point cut.
The National Association of Realtors gave Wall Street reason to be optimistic Monday when it said its forward-looking index of U.S. home sales rose in October for the second month in a row. Though investors still expect the housing market to remain weak well into 2008, the association is forecasting sales and prices to start recovering modestly next year.
The downturn in housing has led to huge losses among banks that invested in securities backed by mortgages, and on Monday, UBS revealed large writedowns. The Swiss bank said it will write down some $10 billion of subprime mortgage holdings, which could lead to full-year losses. However, its U.S. shares rose $1.10, or 2.2%, to $51.58 after the bank unveiled plans for an $11.5 billion cash infusion from the government of Singapore and an unidentified Middle Eastern investor.
“The financial stocks are leading the way higher because of the UBS news,” said Donald Selkin, director of equity research at Joseph Stevens. “There is optimism today that we have seen the worst in the financial sector. There is a feeling that these stocks have already discounted the worst case scenario.”
The announcement from UBS comes ahead of fourth-quarter earnings from the top U.S. investment banks. Lehman Brothers Holdings Inc. will release results Thursday, while Goldman Sachs Group Inc., Morgan Stanley and Bear Stearns Cos. are scheduled to report next week.
After the closing bell, Washington Mutual Inc. said it will record a $1.6 billion writedown on its home loans business as it announced plans to discontinue all subprime mortgage lending and eliminate 2,600 positions in the home loans segment. The nation’s largest savings and loan now expects a loss in the fourth quarter due to the writedown.
[Via Hollywood Reporter]