Stocks turn around late in the session, close mixed on expectations of Goldman settlement

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Late stock rally on Goldman settlement expectation

NEW YORK — Stocks had a late-day turnaround Thursday on expectations that Goldman Sachs is settling the government’s civil fraud charges.

As word spread that the Securities and Exchange Commission had scheduled a late-afternoon announcement, investors began buying on the belief that the government and Goldman Sachs Group Inc. had settled the charges that grew out of the sale of securities based on risky mortgages.

The $550 million settlement was announced less than an hour after trading ended. Goldman agreed to pay fines of $300 million, the largest fine against a financial company in SEC history, and $250 million to compensate investors who lost money on the securities. The deal also requires Goldman to review how it sells complex financial mortgage investments.

Goldman was trading at about $140 a share when word of the announcement came. The stock then soared to close at $145.22, up $6.16.

Goldman was trading at about $140 a share when word of the pending announcement came. The stock then soared to close at $145.22, up $6.16, and shot up to $151.26 in after-hours trading.

John Merrill, chief investment officer of Tanglewood Wealth Management in Houston, said before the announcement that a settlement would come as a relief. The case “hangs over the investment banks and the financial community in general,” he said.

More uncertainty was lifted from the market late in the day, when the Senate passed and sent to President Barack Obama the financial regulation bill.

The Dow fell 7.41, or 0.07 percent, to 10,359.31. The Standard & Poor’s 500 index rose 1.31, or 0.1 percent, to 1,096.48, while the Nasdaq composite index fell 0.76, or 0.03 percent, to 2,249.08.

Losing stocks were slightly ahead of gainers on the New York Stock Exchange, where volume came to 1.1 billion shares.

Bond prices rose as investors worried about the economy sought safety the safety of government securities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.99 percent from 3.05 percent late Wednesday.

For much of the day, the market was down on pessimism about weak economic reports — a problem that will continue to dog the market. A day after the Federal Reserve issued a slightly more bleak outlook on the economy, two regional reports pointed to a slowing in manufacturing activity in the Northeast. Meanwhile, the Fed reported modest growth in industrial output nationwide. And the Labor Department said that first-time claims for unemployment benefits fell last week, but that was largely due to seasonal factors.

“We’ve hit a soft spot,” Howard Ward, chief investment officer at GAMCO Growth Fund, said of the economic recovery. “The question is, are we starting to already improve or are we still falling down.”

The disappointing manufacturing reports, which followed a weeklong stock rally, made the market “susceptible to profit taking” after the market’s week-long advance, Ward said.

There appeared to be a shift in investors’ view of the economy. They had been upbeat over the past week on more positive economic signs, in particular forecasts from companies including Intel Corp. and Alcoa Inc. But the latest disappointing numbers now seem to be dictating investors’ moves, and analysts questioned whether investors would start buying again if companies keep reporting strong earnings and outlooks.

JPMorgan Chase, the first big bank to report its second-quarter earnings, said it had set aside less money to cover losses on failed loans. That is a sign that mortgage and loan defaults may be moderating. But Dimon kept a cautious tone about future economic growth.

“Earnings are strong,” said Sandy Mehta, principal and chief investment officer of Value Investment Principals. “But the underlying economy is not as strong.”