Rush by U.S. Investors Spurs Highest Volume Ever, Rallies Abroad
Wall Street staged one of the most dramatic rebounds in its history Tuesday as the Dow Jones industrial average soared 337.17 points, its largest point increase ever, amid stock trading volume that handily blew past all previous records and severely taxed computerized trading systems around the country.
The Dow’s gain, a 4.7% surge that took the widely watched index of 30 blue-chip stocks to 7,498.32, recouped 60% of Monday’s record 554-point rout.
The recovery reflected a wholesale rush by small and institutional investors back into the market one scant day after a confidence-challenging plunge.
U.S. investors’ show of confidence also spurred big rallies in Latin America on Tuesday, and early today helped lift many of Asia’s severely pummeled markets. Hong Kong’s Hang Seng index was up a stunning 1,512 points, or nearly 17%, to 10,572 at midday. Tokyo’s key share index gained 3.3% by midday.
Wall Street’s renewed enthusiasm suggested that investors still regard equities as the best long-term investments and remain confident the U.S. economy has lost none of its robustness, analysts said.
But it also hinted at the possibility that daily swings in the market of hundreds of points will become increasingly common. On Tuesday, for example, the market dropped nearly 190 points before beginning its inexorable climb.
Tuesday’s rally encompassed record gains in point terms by other major stock indexes. The Nasdaq composite index closed at 1,603.02, for a gain of 67.93 points, or 4.4%. The Standard & Poor’s 500 index rallied 44.86 points, or 5.1%, to 921.85.
However, none of the gains was a record in percentage terms: Nasdaq’s gain was the fourth largest, but the Dow’s percentage gain, while the biggest since 1987, did not rank anywhere near the top 10.
The rally put the Dow’s year-to-date rise at 16.3%--a strong showing, if well short of the 28.2% gain it registered at its peak on Aug. 6.
U.S. Treasury securities, meanwhile--which rallied as a safe haven Monday as investors sought shelter for their money--slumped Tuesday as assets flowed back into equities. The 30-year U.S. Treasury bond yield surged to 6.28% from Monday’s 20-month low of 6.12%.
“We think we passed the test,” said William Raftery, technical analyst at the investment firm Smith Barney, referring to the stock market’s ability to recover from what appeared hours earlier to be a crippling blow.
But the most remarkable record of the day was set by trading volume. On the New York Stock Exchange 1.2 billion shares changed hands, easily outstripping the record of 684.5 million set the previous day.
Nasdaq stock market volume reached 1.373 billion shares, a trading pace that overloaded the market’s system of trade reporting and confirmation for its market makers, or brokers.
Confirmations ran more than an hour late on Nasdaq through much of the day and ceased entirely after 3:17 p.m. Eastern time, 43 minutes before the market’s close. That forced brokers to turn to other private services for up-to-date data and prevented Nasdaq from updating its own stock market indexes for more than two hours after the close.
At 1.3 billion shares, said Frank Zarb, chairman of the National Assn. of Securities Dealers, the Nasdaq’s parent, “you begin to get near the top of what they [the systems] are designed for.”
No similar problems were reported from the NYSE floor. Individual and professional stock traders, however, complained all day of unusual delays in reaching their brokers or obtaining timely trade confirmations.
The strength of the stock market’s turnaround was particularly unexpected given the baleful atmosphere that prevailed as trading opened.
Markets in Asia, which had set the downbeat tone for U.S. trading over several days, had closed sharply down before New York stock trading opened for the day: Hong Kong’s Hang Seng stock index, perhaps the most troubled of all the Asian indicators, lost a stunning 13.7%.
Moreover, thousands of leftover sell orders from Monday’s U.S. trading, which was truncated by two historic trading halts on the New York Stock Exchange, remained to be executed at the open.
U.S. markets accordingly opened sharply lower, with the Dow industrials sinking about 189 points in the first 45 minutes of trading.
But Wall Street professionals and some government officials were hard at work coaxing the markets out of their jittery ways. Two Federal Reserve Board governors, St. Louis Fed President Thomas Melzer and Philadelphia Fed President Cathy Minehan, released speeches remarking on the economy’s fundamental strength and low inflation.
Meanwhile, Abby Joseph Cohen, a widely followed bull who is co-chair of the investment policy committee at Goldman, Sachs & Co., issued a report urging clients to raise the stock portion of their portfolios to 65% from 60%.
“We view recent stock price declines in the United States as primarily a ‘market’ event, rather than an ‘economic’ event,” she said, arguing that Monday’s fall and the low inflation and interest-rate prevailing domestically had made the stock market, as represented by the Standard & Poor’s 500 index, undervalued by 5%.
The last pillar of the rebound came from IBM, which said it would expand its stock-buyback program by $3.5 billion. BellSouth also announced a stock-buyback and several other major companies said they were considering similar maneuvers.
Corporations often announce stock buybacks after major market sell-offs, in part as an expression of faith in the broad market, but also to protect against corporate raiders who may try to take advantage of unreasonably low stock prices.
IBM ended the day up $9.38 at $99.38. The move more than erased the stock’s loss the day before.
Meanwhile, many market analysts were offering clients “wish lists” of stocks or sectors rendered attractive by Monday’s selling.
“I think the market created a lot of attractive prices yesterday,” said Thomas McManus, U.S. equity strategist at NatWest Securities in New York. “This is not the end of the bull market.” He urged clients to focus on such consumer nondurable stalwarts as beverage, household product, cosmetics and drug companies, including Coca-Cola, Procter & Gamble, Gillette and Merck.
Yet, as powerful as it was, Tuesday’s trading did not entirely erase traders’ doubts about the market’s future course. Convulsive moves like those of the last two days often lead to days or weeks of volatile trading, some warned.
Moreover, strong post-sell-off rallies are not in themselves guarantees that corrections or bear markets have been quelled. Two of the 10 largest percentage increases in the Dow industrials, for example, occurred after market crashes in 1929 and presaged a grinding bear market lasting years.
* INVESTORS JUMP IN: Main Street’s confidence shows in a bargain buying spree. A16
* MARKET BEAT: Tom Petruno looks at where the bargain hunting was. D1
* INVESTOR Q&A;: Should investors stick with their funds now? D12
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
What a Difference a Day Makes
Capping two of the most tumultuous days in Wall Street history, the stock market bounced back Tuesday with a buying frenzy. The Dow soared an unprecedented 337 points in one day as New York Stock Exchange volume records were shattered with 1.1 billion in shares exchanged.
2:35 EST: Trading halted for 30 minutes
3:30 EST: Trading closed early for day
CLOSING: 7498.32
