Stocks post sharp rebound
Stocks rebounded sharply Wednesday as investors, growing more optimistic about chances for an interest rate cut, sought bargains after Tuesday’s huge tumble. The Dow Jones industrials gained almost 250 points.
Many investors believe the Federal Reserve will cut interest rates at its next meeting Sept. 18 or even sooner and were preparing for Federal Reserve Chairman Ben S. Bernanke to hint at such a move Friday in a speech in Jackson Hole, Wyo. The possibility of a rate cut has given Wall Street hope that the stock market will recover from its summer volatility and that right now, it’s a good strategy to buy while the buying is cheap.
News that Bernanke said in a letter to Sen. Charles E. Schumer (D-N.Y.) that the Fed was “prepared to act as needed” if the market’s turbulence hurt the economy helped lift stocks.
The Fed hasn’t indicated that it will indeed lower its benchmark rate, but the central bank has been adding cash to the banking system in an attempt to keep the credit markets liquid. The Federal Reserve Bank of New York said Wednesday that it would inject $5.25 billion through a one-day repurchase agreement, in which it buys that amount in collateral from dealers who then deposit the money into commercial banks.
Wall Street was also enthusiastic about signs of corporate muscle. A jump in oil prices fed a rally in energy company stocks, and positive news from technology companies including Seagate Technology gave that sector a boost.
Stock investors kept an eye on the credit markets for signs of loosening. Though the safest assets, Treasury securities, are not seeing the same frantic buying they saw a couple of weeks ago, assets with a bit more risk, such as commercial paper, are having some trouble attracting buyers.
“Everyone’s waiting for the dust to settle there,” said Steven Goldman, chief market strategist at Weeden & Co. “We’re on a little bit better footing, but we’re in a healing process that takes time.” A Fed rate cut, he added, should be seen as “mandatory.”
The Dow rose 247.44 points, or 1.9%, to 13,289.29, near its highs of the session. The blue-chip index tumbled 280 points Tuesday amid pessimism about the Fed’s intentions.
Broader stock indicators also jumped. The Standard & Poor’s 500 index climbed 31.40 points, or 2.2%, to 1,463.76, while the Nasdaq composite index gained 62.52 points, or 2.5%, to 2,563.16.
The Russell 2,000 index of smaller companies rose 19.49 points, or 2.54%, to 787.32.
Advancing issues led decliners by about 5 to 1 on the New York Stock Exchange.
Michael Sheldon, chief market strategist at Spencer Clarke, said investors might be gaining confidence that the Fed will lower interest rates and that financial institutions can weather their exposure to distressed mortgages and loans.
“At least for a day, people feel like there is a light at the end of the tunnel,” he said. “The problems facing the big brokerage firms, while not great, are being seen as at least manageable.”
In another sign that more investors are expecting a rate cut, the Treasury sold $18 billion of two-year notes Wednesday at a yield of 4.11%, the lowest since September 2005. Demand at the monthly auction, as measured by the ratio of the volume of bids to the amount of securities sold, was the highest since at least 1992. At the July auction, two-year notes yielded 4.73%.
But yields on longer-term Treasury securities rose as investors moved back into stocks. The yield on the benchmark 10-year Treasury note rose to 4.56% from 4.51% late Tuesday.
The dollar fell against other major currencies except the yen. Gold prices rose.
Oil futures soared $1.78 to $73.51 a barrel in New York on a report of larger-than-expected declines in gasoline and oil inventories.
Energy shares in the S&P; 500 climbed 3.2% as a group for the top advance among 10 industries. Exxon Mobil jumped $2.23, or 2.7%, to $85.23. ConocoPhillips rose $2.96, or 3.8%, to $81.77.
In other market highlights:
* Insurers rallied after Fitch Ratings and S&P; said the sector faced little or no risk of losses or cash shortages from the sub-prime mortgage turmoil. Travelers added $2.06, or 4.1%, to $52.04. Prudential Financial gained $3.63, or 4.2%, to $89.84.
* Retailers gained after Big Lots and Williams-Sonoma raised their outlooks, suggesting that companies don’t foresee a significant decline in consumer spending.
Williams-Sonoma surged $3.13, or nearly 11%, to $32.70. Big Lots rose $2.61, or 9.9%, to $28.91.
* Apple climbed $7.26, or 5.7%, to $134.08 on speculation that it would launch a new line of iPods that could boost sales.
* Several analysts raised price targets on Seagate Technology. Its shares rose 93 cents, or 3.8%, to $25.39.
* Nokia jumped $2.17, or 7.2%, to $32.18 after it unveiled new Internet services and gadgets for downloading music and playing games on mobile handsets.
* Wall Street’s plunge Tuesday triggered selling in Asia, where key stock indexes fell 1.7% in Japan, 1.5% in Hong Kong and 1.6% in Shanghai. European stocks, which slumped Monday along with the U.S. market, advanced Wednesday, with indexes rising 0.5% in Britain, 0.1% in Germany and 0.8% in France.
