Stocks jump sharply as worries ease
The stock market ended its worst January in 18 years with a sharp advance Thursday after investors set aside worries about bond insurers and grew more optimistic that the Federal Reserve’s rate cuts would indeed help lift the economy.
The Standard & Poor’s 500 index, the market measure most closely followed by traders, jumped 1.7% but ended the month down 6.1%, its biggest January drop since 1990.
At one point Thursday, the S&P; had extended its January tumble to 9.1%, which would have been the biggest in the 80-year history of the index.
The Dow Jones industrials rose more than 200 points Thursday but were off 614 points, or 4.6%, for the month, marking their worst January in eight years.
The month saw frequent triple-digit moves in blue chips as investors alternately anguished about fallout from the housing and mortgage crisis and celebrated any news that indicated the damage might be limited. The Fed’s 1.25 percentage points in interest rate cuts this week and last ultimately gave Wall Street some reassurance that the economy might soon show signs of recovery.
Many investors also took comfort Thursday when the chief executive of troubled bond insurer MBIA expressed confidence the company could raise fresh capital and retain its crucial AAA credit rating.
The notion that bond insurers could perhaps avoid being felled by a rush of claims over swaths of bad debt offered solace for investors who have for months worried about the fallout from a sharp pullback in the housing market and the resulting souring mortgage debt.
“Today is really more of a relief rally,” said Ryan Detrick, strategist at Schaeffer’s Investment Research in Cincinnati. “For once, there’s actually maybe some calm coming into Wall Street.”
The Dow surged 207.53 points, or 1.7%, to 12,650.36.
Broader stock indicators also jumped Thursday. The S&P; 500 index climbed 22.74 points to 1,378.55, and the Nasdaq composite index advanced 40.86 points, or 1.7%, to 2,389.86.
The Russell 2,000 index of smaller companies jumped 17.81 points, or 2.6%, to 713.30.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange.
Government bond yields fell. The 10-year Treasury note dropped to 3.61% from 3.64% late Wednesday.
The dollar was mixed against other major currencies while gold prices edged up.
Oil prices slid. Crude futures fell 58 cents to settle at $91.75 a barrel in New York.
Thursday’s rebound in stocks came even as reports showing sluggish consumer activity and higher initial claims for unemployment reflected weakness in the economy.
Data due today may be more closely watched as the Labor Department releases January’s unemployment rate as well as the latest number of payroll jobs.
MBIA’s comments about its access to capital and the possibility of raising more of it seemed to dampen unease about recent moves by rating agencies related to bond insurers. Moody’s Investors Service and Standard & Poor’s have said they were reviewing their ratings on MBIA and other bond insurers on concern that their exposure to sub-prime mortgage securities would make them unable to pay all of their claims.
MBIA initially fell 15% early Thursday after reporting a $2.3-billion fourth-quarter loss because of heavy write-downs but rebounded to close at $15.50, up $1.54, or 11%.
The No. 2 bond insurer, Ambac Financial Group, gained 79 cents, or 7.3%, to $11.64, after being down 11%.
Concern that the ratings were in jeopardy helped erase overall market gains Wednesday that had been sparked by the Fed’s rate cut.
Leading Thursday’s advance were financial companies and makers of discretionary consumer goods, last year’s worst-performing industries.
Credit card stocks rose after MasterCard said its fourth-quarter profit climbed sevenfold as U.S. consumers spent more on gas and food. MasterCard shares jumped $18 to $207. American Express rose $1.79 to $49.13. Discover Financial Services gained $1.19 to $17.49.
An index of retailing stocks jumped 4.4%. Deutsche Bank raised its ratings on U.S. chain stores, saying they would benefit from a fiscal stimulus package and interest-rate cuts in the next six months.
Home Depot added $1.26, or 4.3%, to $30.64. The retailer cut about 500 employees, 10% of its headquarters workforce.
In other market highlights:
Google sank 7.1% to $524.30 in after-hours trading. The Internet giant reported profit and sales that trailed most analysts’ estimates.
Motorola gained 10% to $12.65 after hours. The company said it might spin off its mobile-phone hand-set unit.
Overseas, key stock indexes rose 1.9% in Japan and 0.7% in Britain. Shares fell 0.3% in Germany and 0.1% in France.
