Rally ends seesaw session
Major stock indexes staged a late-day rally Wednesday, after zigzagging between positive and negative territory as anxiety about the effects of the sub-prime mortgage crisis persisted.
The Dow Jones industrial average recouped the deep loss it suffered a day earlier. Broader stock indexes also rallied but made smaller gains, and declining stocks outnumbered advancing issues 4 to 3 on the New York Stock Exchange.
In a sign of investors’ unwillingness to take big risks, the ostensibly safer stocks of big companies, led by utilities, easily outperformed smaller-company stocks. Utility shares in the S&P; 500 gained 2.7% as a group.
The market for risky debt, however, showed signs of stabilizing, which would be a plus for the stock market. The price of oil, meanwhile, retreated from the record close set Tuesday.
The Dow on Wednesday closed up 150.38 points, or 1.1%, at 13,362.37, after being down as much as 79 points. The Standard & Poor’s 500 index gained 10.54 points, or 0.7%, to 1,465.81.
The Nasdaq composite index rose 7.60 points, or 0.3%, to 2,553.87, and the Russell 2,000 index of smaller stocks went up 1.80 points, or 0.2%, to 777.92.
Wednesday’s volatility illustrated the confusion permeating the market as investors struggle to determine whether stocks can shrug off the ill effects of the sub-prime mess.
“It’s a pitched battle between the bulls and the bears,” said John Bollinger, head of Bollinger Capital Management. “The bulls will make a charge and carry prices higher, and the bears will see a selling opportunity and press prices lower. Then the bulls see value and try to take advantage of it, and the cycle continues. It’s the most hotly contested market I can remember.”
After the Dow’s 146-point drop Tuesday, overseas markets sank overnight. In Asia, key stock indexes tumbled 4% in India and South Korea, 3.8% in Shanghai, 3.2% in Hong Kong and 2.2% in Japan. In Europe, indexes slid 1.7% in Britain, 1.5% in Germany and 1.7% in France.
In U.S. trading, financial stocks took a fresh beating as investors continued to flee companies with perceived exposure to mortgage or credit-market problems. The NYSE Financial index closed down 0.3% after being off as much as 2.3% early in the day.
Investors were unnerved by news late Tuesday that a third hedge fund managed by Bear Stearns was barring investors from withdrawing money in the wake of losses. Bear Stearns shares slid $2.92, or 2.4%, $118.30.
Mortgage-related worries were amplified Wednesday when rumors swept through Wall Street that Atlanta-based builder Beazer Homes would file for bankruptcy protection. Its shares plunged 42% before the firm issued a statement dismissing the rumors as “scurrilous and unfounded.” The stock lost $2.51, or 18%, to $11.48. Other builder stocks fell as well.
Shares of home-loan insurers MGIC Investment and Radian Group sank for a second day, after the companies said their stakes in a sub-prime mortgage investor might be worthless. MGIC fell $3.90 to $34.76, bringing its two-day decline to 24%. Radian, the rival MGIC is acquiring, slid $6.20 to $27.51, bringing its two-day drop to 32%.
The market is finding a new floor, said Stanley Nabi, chief strategist at Silvercrest Asset Management. But it takes a while to rebuild investor confidence, he said.
“Investors are looking to get their sea legs back,” Nabi said. “It’s back and forth, back and forth. It’ll probably be for the next few days one day up, one day down, half a day up, half a day down.”
In the bond market, the average yield on an index of 100 junk bonds tracked by KDP Investment Advisors edged up to 8.63% from 8.62% late Tuesday. The yield on the index hit a nearly four-year high of 8.85% on Friday, the second day of a sharp slide in the Dow.
In the Treasury market, however, where yields fell recently as investors turned to the relative safety of U.S. government debt, yields rebounded Wednesday. The market rate on the benchmark 10-year Treasury note climbed to 4.79% from 4.72% late Tuesday.
Oil futures slid $1.68 to $76.53 a barrel on the New York Mercantile Exchange after hitting an intraday high of $78.77 in the wake of a government report showing a drop in crude inventories.
The dollar was mixed against other major currencies Wednesday, while gold prices fell.
In other market action:
* Tupperware Brands soared $5.96, or 23%, to $31.97. The plastic container maker’s second-quarter earnings jumped 40%, more than expected.
* MasterCard sank $10.80, or 6.7%, to $150. A rise in spending by its cardholders helped produce a better-than-expected second-quarter profit.
* In after-hours trading, Dolby Laboratories soared $3.37, or 10%, to $36.85, after the audio firm gave a better-than-expected profit forecast.
--
Times wire services were used in compiling this report.
