Stocks Stage Rebound Amid Upbeat Reports
Wall Street bounced back Wednesday, more than recouping the previous day’s losses, as a string of upbeat economic reports helped the market regain its recent momentum.
The Dow industrials, which tumbled 173 points Tuesday, rose more than 250 points, and other indexes staged equally strong rebounds. The surge was fueled not only by the day’s economic news, analysts said, but also by portfolio managers jumping aboard the rally in an effort to trim their losses before year’s end.
“Mutual fund managers are behind their benchmarks,” said Russ Koesterich, equity strategist at State Street Global Markets. “Everyone is playing catch-up, trying to make up as much ground as possible. They’re chasing momentum.”
The Dow jumped 255.26 points, or 2.9%, to 8,931.68; the broader Standard & Poor’s 500 index rose 25.56 points, or 2.8%, to 938.87; and the tech-heavy Nasdaq composite gained 43.51 points, or 3%, to 1,487.94.
Winners swamped losers by about 3 to 1 on the New York Stock Exchange and Nasdaq. Volume, although not heavy, was solid for a day that traditionally features light trading. Markets are closed today for Thanksgiving and will close early Friday, at 10 a.m. PST.
Investors were encouraged by the government’s report that consumers increased their spending in October, reversing September’s drop and slightly exceeding expectations. Retail stocks got a lift, including Home Depot, up $1.07 to $26.09; Best Buy, up $1.41 to $27.03; and Target, up $1.72 to $35.30.
Positive reports on new jobless-benefit claims, durable-goods orders during October and manufacturing activity in the Midwest this month were taken as further evidence of a rebounding economy.
“The numbers suggest the economy is indeed resilient and the consumer has stayed on track where spending is concerned,” said Kevin Caron, strategist at Ryan, Beck & Co.
Analysts also attributed the day’s equity gains to “short covering,” in which traders with bearish bets scramble to buy shares to minimize their losses, adding juice to a rally.
Koesterich said simple momentum has played a pivotal role in the rally since stock indexes sank Oct. 9 to five-year lows: Portfolio managers have been buying volatile, rising stocks regardless of fundamentals, he said, so as not to be left behind.
Momentum buying could fuel further gains before year’s end, even though many money managers still fear this move is just another sharp bounce within the bear market that began in 2000.
But major indexes are approaching key levels. The S&P; 500 has climbed 20.9% since early October. If it rises more than 21.4%, the gain will exceed the best advance of any of the previous rallies since the bear market began.
Some of the most volatile stocks already have doubled or tripled in the current surge. Telecom equipment maker Corning, for example, which rose 37 cents on Wednesday to $4.12, has zoomed 270% in seven weeks.
Money managers are desperate to avoid notching a third consecutive losing year, Koesterich said. Even with the recent gains, that will be a tough feat for many. The average U.S. stock fund was down 18.9% year to date through Tuesday, according to data tracker Morningstar.
Meanwhile, bond yields rose as Wednesday’s stock surge and economic reports encouraged investors to shift assets out of fixed-income securities.
In other highlights:
* Semiconductor equipment maker Novellus Systems shot up $2.95 to $37.43, sparking a rally in the chip sector, after saying fourth-quarter orders seem to be improving. The SOX index of chip stocks surged 6.7%.
* Eli Lilly jumped $5 to $69 after regulators approved two of its drugs and Standard & Poor’s upgraded its rating on the stock to “buy” from “hold.” Elsewhere in the drug sector, Transkaryotic Therapies plunged $4.70 to $9.56 after saying its kidney disease treatment was disappointing in early trials.
* Better-than-expected profit reports boosted several stocks, including Michaels Stores, up $3.71 to $38.61, and Hughes Supply, up $1.30 to $32.65. But Dollar General slid $1.20 to $12.86 after falling shy of third-quarter expectations.
Associated Press was used in compiling this report.
Market Roundup, C5-6
