Stocks Surge on Geithner Pick

Indexes erased Thursday's steep declines after Obama's choice for the crucial job of Treasury Secretary was revealed

By Ben Steverman and Will Andrews

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U.S. stocks surged Friday after word leaked that President-Elect Barack Obama plans to nominate New York Federal Reserve President Timothy J. Geithner as his nominee for U.S. Treasury Secretary.

There were other news items affecting the market Friday, including more fretting about the fates of Citigroup (C) and the U.S. auto industry. But major market indexes remained flat until reports of the Geithner pick arrived, sparking a rebound from Thursday's plunge to an 11-year low.

On Friday, the Dow Jones industrial average jumped 494.13 points, or 6.54%, to 8,046.42. The broad S&P 500 index gained 47.59 points, or 6.32%, to 800.03. And, the tech-heavy Nasdaq composite rose 68.23 points, or 5.18%, at 1,384.35.

On Thursday, by contrast, the Dow had plunged 444.99 points, and the S&P 500 closed at 752.44 -- its lowest level since April 1997. Friday's rally brings the S&P 500 back above its October 2002 lows.

Several market observers said Friday's reaction to the Geithner pick demonstrates a thirst for stronger leadership from Washington.

"There is a void of market confidence," says Bill Larkin, fixed income portfolio manager at Cabot Money Management.

In recent days, as stocks tumbled to levels not seen since the 1990s, many market commentators partly blamed confusing signals coming from Washington. Congress spent the week arguing but failing to agree on a bailout plan for General Motors (GM), Ford (F) and Chrysler. And, current Treasury Secretary Henry Paulson was criticized for shifts in the financial bailout plan.

Stocks rallied on the Geithner pick because "he's the right man at the right time," says Peter Cardillo, chief market economist at Avalon Partners. As president of the New York Fed, Geithner was involved in Paulson's efforts to prop up the financial system, but there's hope he can also improve on the current administration's efforts. Geithner also served as a Treasury undersecretary during the Clinton administration and helped respond to the Asian economic crisis in 1997.

"He has a lot of experience and certainly he knows the canyons of the financial markets," Cardillo says.

"I expect [Geithner] will treat the current situation with the urgency that it deserves," says Ward McCarthy, principal at Stone & McCarthy Research Associates. "I also expect him to be far more creative than Treasury Secretary Paulson."

Financial markets may be reassured Obama didn't choose a fresh newcomer who wouldn't understand the players in the crisis and couldn't hit the ground running, Larkin says. The pick "had to be someone who is currently in the system."

It's expected that Obama will name several key members of his economic team next week. Reports Friday said New Mexico Gov. Bill Richardson is Obama’s pick for commerce secretary.