Stocks Recover From Early ‘Corrective’ Dive
Stocks staged a stunning late-session rally Tuesday, recovering from a deep decline and raising hopes that the latest market pullback may be nearing an end.
The Dow Jones industrials ended down 27.86 points for the day at 10,275.53, after diving 222 points by midday.
Most other major indexes also ended with modest losses after sharp early declines. The Nasdaq composite had been down as much as 2.4% before rocketing to end just 0.2% lower at 2,756.25.
Trading was heavy, with composite volume on the New York Stock Exchange and Nasdaq topping 1 billion shares each.
Stocks have tumbled in recent weeks on worries over the falling dollar, corporate earnings and interest rates, among other concerns. Last week, Microsoft President Steven Ballmer triggered a rout after he said technology stocks were extremely overvalued.
At their lows Tuesday, key market indexes such as the Dow and the Standard & Poor’s 500 were down more than 10% from their 1999 peaks--meaning they were officially in “correction” territory.
Some analysts said it wasn’t surprising that the market rebounded quickly after crossing the 10%-loss threshold.
“Every time we come close to a 10% correction in the Dow, investors feel this is enough of a drop and they go back in and buy stocks,” said Robert Freedman, executive vice president of the John Hancock Funds in Boston. “That’s what we saw happen today.”
“When the market got close to 10,000, those not fully invested took advantage of it,” said Jim Herrick, managing director at Robert W. Baird & Co. in Milwaukee.
Microsoft fell as low as $89.06, but closed up 69 cents at $92.13. Many bank and brokerage stocks also closed higher. The latest resurgence in many Internet stocks also continued, with America Online up $8.75 to $109.88.
Stocks got some support from the dollar, which held on to its Monday gains against the yen, closing in New York at 106.10 yen.
“We saw the dollar getting stronger against the yen, and that’s what turned things around,” said Arthur Hogan, chief market analyst at Jefferies & Co. “It was a huge psychological barrier.”
The dollar’s slide against the yen in recent weeks has raised fears that foreign investors will add to selling pressure in U.S. markets by dumping their holdings here.
But over the weekend, leaders of major industrialized nations signaled that the yen should be restrained--a move analysts said could bring more pressure on a reluctant Bank of Japan to loosen monetary policy and weaken the yen.
“The Bank of Japan’s hand may be forced,” Mark Parry, who helps manage more than $14 billion at Hill Samuel Asset Management, told Bloomberg News.
In Tokyo, the Nikkei-225 stock index surged 3% on hopes the yen will begin to slide.
For Wall Street, another major fear may be waning: that the Federal Reserve will raise short-term interest rates again when it meets next Tuesday.
A Wall Street Journal story Tuesday suggested the Fed may opt to leave rates alone. That could set the stage for a rally in stocks, some analysts say.
Bond yields went the other way Tuesday, but analysts said that reflected some money coming out of Treasury securities and going back into stocks. The yield on the 30-year T-bond ended at 6.08%, up from 6.01% on Monday.
Despite the market’s late rebound, some technical analysts, who study the price and volume patterns of stocks, said they doubt the rally will last.
There are too many other factors weighing on the market, such as the fact that on many days recently the number of declining stocks has far outnumbered rising issues, said Michael Kahn, chief technical analyst for BridgeNews.
Also, the S&P; 500 index’s falling below its 200-day moving average late last week was a troubling technical sign, he said.
“Today the recovery was good,” Kahn said. But “it wasn’t good enough to override all the other things that have happened.”
Losers still topped winners by 19 to 11 on the NYSE and by 25 to 14 on Nasdaq.
Some analysts doubted that Tuesday marked a so-called blowoff day that dramatically reverses a decline, because trading volume, while high, didn’t near record territory.
Also, the early-day selling didn’t have a panicked feel to it, some said.
Philip Rettew, a senior analyst at Merrill Lynch & Co., said he doubts a recovery will occur until investor sentiment weakens further.
In the contrarian ways of the stock market, extreme pessimism is considered a positive sign because it indicates that most investors who are likely to dump stocks in the short term may already have done so, setting the stage for buyers to take over.
Although bullish sentiment measures have fallen to 12-month lows, “we need to see more fear, and I don’t see any fear to speak of,” Rettew said.
But Alfred Goldman, market strategist for A.G. Edwards & Sons in St. Louis, said he thinks a market bottom is near. He expects the Fed to leave rates alone next week. That could leave investors to focus on what should be very strong third-quarter corporate earnings reports, he said.
Market Roundup, C11
* HOT GOLD, HOT IPOs
The metal soars again; meanwhile, a new Net stock zooms 525%. C4
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Is It Over?
Most major U.S. stock indexes have fallen close to or more than 10% from their 1999 highs--official “correction” territory. A sampling:
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Tues. Drop from Index close ’99 high Nasdaq composite 2,756.25 -4.5% S&P; small-cap 172.57 -9.2 Dow industrials 10,275.53 -9.3 S&P; 500 1,282.20 -9.6 NYSE composite 590.08 -11.0 S&P; mid-cap 380.83 -11.0 Dow transports 2,856.98 -24.5
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Source: Times research
