Stocks end sell-off with strong rally
The beaten-down stock market rebounded sharply Tuesday on signs that consumers are still willing to spend and that at least one Wall Street giant remains immune from the sub-prime virus.
After sliding 4.9% over the four preceding trading sessions, the Dow Jones industrial average rose steadily throughout the day to finish up 319.54 points, or 2.5%, at 13,307.09. Other major indexes posted even steeper gains.
Financial stocks led the market higher after Goldman Sachs Group’s chief executive, Lloyd Blankfein, told an industry conference the investment bank would not record a significant fourth-quarter write-down of mortgage-related assets. After two weeks in which a number of big financial institutions divulged a second round of multibillion-dollar mortgage hits, the comments raised hope that the worst of the losses for Wall Street firms had already been reported.
Goldman’s shares surged $18.33, or 8.5%, to $233.04.
Meanwhile, on Main Street, Wal-Mart Stores reported earnings that topped analysts’ estimates, and the world’s largest retailer raised its full-year profit forecast, suggesting the economy is on solid footing and that consumers will keep spending freely this holiday season. Wal-Mart shares advanced $2.65, or 6.1%, to $45.97.
Technology stocks performed especially strong, sending the Nasdaq composite index up 89.52 points, or 3.5%, to 2,673.65. The Standard & Poor’s 500 index jumped 41.87 points, or 2.9%, to 1,481.05. The Russell 2,000 index of smaller companies rose 22.06 points, or 2.9%, to 789.15.
Advancing issues led decliners by about 5 to 1 on the New York Stock Exchange.
A drop in oil prices helped to fuel the buoyant mood of stock investors. Crude futures slumped $3.45, or 3.6%, to $91.17 a barrel on the New York Mercantile Exchange.
Experts said a one-day gain didn’t mean the stock market had overcome its recent travails, driven by fears that the sub-prime-mortgage crisis could whack the broader U.S. economy. Intense rallies are common within longer-term market corrections as bargain hunters scoop up shares . But nascent recoveries can give way if bad news continues to emerge.
Nevertheless, the rally underscored a belief among some investors that the sell-off that began last week, which drove the Dow down 4.1%, was overdone.
“When the market gets driven by fear, it creates opportunities,” said Bill Buechler, president of Buechler Capital Asset Management, a money-management firm in La Jolla. “We’ll see if we can hold it or not, but it was a great day.”
The excitement was strong enough to push up shares of Bank of America, despite its warning that it would take a $3-billion write-down in the fourth quarter.
The company also said it would earmark $600 million to shore up money market funds that have exposure to complex financial instruments that have suffered in the credit crunch induced by the sub-prime meltdown. Bank of America shares rose $2.29, or 5.2% to $46.27.
Other financial stocks rallied. An index of stocks in the S&P; 500 diversified financials index jumped 5.7%, its biggest gain in five years.
Citigroup, which announced a revamping of its investment banking division, rose $2.33, or 6.9%, to $35.90.
Merrill Lynch climbed $3.76, or 7.1%, to $56.95. JPMorgan Chase advanced $2.66, or 6.3%, to $45.05. Morgan Stanley was up $2.09, or 3.9%, to $55.86.
E-Trade Financial soared $1.45, or 41%, to $5 for the biggest gain in the S&P; 500. BMO Capital Markets, calling the company a potential takeover target, said mortgage-related debt was “highly unlikely” to force the online brokerage to file for bankruptcy protection. E-Trade shares plunged 59% on Monday after a Citigroup analyst speculated that the company’s bank unit could face heavy withdrawals by depositors that could send the company into bankruptcy proceedings.
Calabasas-based mortgage giant Countrywide Financial rose 53 cents, or 4%, to $13.72.
A.C. Moore, chief investment strategist for Dunvegan Associates Inc. in Santa Barbara, has been buying Bank of America and other financial stocks in the last few weeks on the theory that the economy is stronger than people think.
“There’s a lot of the banking industry that’s just being thrown out with the bath water,” Moore said, describing banking stocks as “pretty cheap.”
Wal-Mart’s strong earnings lifted the market even though they were partly the result of early-season price cuts by the retailer in response to worries that holiday spending would be soft. And heavy sales at a discount store don’t mean shoppers will flock to full-priced retailers.
But any sign of consumer resilience was enough to propel the retailing sector, which was pounded last week.
Shares of Home Depot climbed 66 cents, or 2.3%, to $29.12 even though the home-supply chain slashed its fiscal-2007 profit forecast and indicated that it would slow a planned stock buyback.
Retailer TJX -- the operator of T.J. Maxx and Marshalls -- reported lower-than-expected earnings, which it blamed on unseasonably warm early-fall weather. But its shares gained $1.10, or 3.8%, to $30.42.
In the tech sector, which has been outperforming the broader market this year, an S&P; index of 71 information-technology stocks jumped 4% on Tuesday after tumbling 11% in the four preceding trading days.
IBM rose $3.82, or 3.8%, to $105.27; and Google advanced $28.48, or 4.8%, to $660.55.
Apple posted a gain of $16.20, or 11%, to 169.96. China Mobile Ltd., the world’s biggest wireless operator with 523 million subscribers, said it was in talks to sell Apple’s iPhone.
Corning surged $2.14, or 10%, to $23.54 after the world’s largest maker of liquid-crystal-display glass for flat-screen televisions upped its profit outlook for the fourth quarter.
Yahoo advanced $1.32, or 5.3%, to $26.10. CIBC raised its recommendation on the stock to “sector outperformer” from “sector performer,” citing its 21% drop over five days and the rising value of Yahoo’s stakes in companies including China’s newly public Alibaba.com.
But Adobe Systems, the biggest maker of graphic-design software, retreated $1.33, or 3.2%, to $40.86 after the company’s chief executive resigned unexpectedly.
In other market highlights:
* Gold prices slipped back under $800 an ounce, falling $8.60 to $797.20. The dollar was mixed against other major currencies.
* Yields on Treasury bonds rose along with stock prices. The yield on the benchmark 10-year Treasury note rose to 4.28% from 4.22% late Friday. The Treasury market was closed Monday for Veterans Day.
* Overseas, key stock indexes rose 0.5% in Hong Kong, 0.4% in Britain and 0.1% in France. Shares fell 0.5% in Japan and 0.4% in Germany.
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Times wire services were used in this report.
