Stocks find footing after fall
Stocks rebounded Tuesday from a sharp decline the day before as investors took comfort from a drop in oil prices and a big cash infusion into ailing Citigroup.
The Dow Jones industrial average rose 215 points, or 1.7%, nearly recouping all of the 237 points it shed in Monday’s downdraft. The Standard & Poor’s 500 index and the Nasdaq composite index also notched advances of at least 1.5% during the volatile session.
With Tuesday’s bounce, the percentage drops in the Dow and the S&P; 500 from their record highs last month reverted to single-digit slides, though many analysts were skeptical that the recovery would last.
Investors were cheered by the drop in oil prices, which slid after Saudi Arabia’s oil minister pledged a boost in production.
Financial stocks rallied after banking giant Citigroup, whose earnings and capital levels have been thrashed by losses tied to the sub-prime mortgage crisis, got a $7.5-billion investment from the government of Abu Dhabi.
The day was marked by bargain hunting, as investors picked over stocks that had been beaten down this month amid almost daily doses of bad news tied to the mortgage mess.
“The market is continuing to grope through the whole sub-prime credit crisis,” said Charles Blood, director of strategy research at Brown Brothers Harriman & Co.
Some analysts said Tuesday’s rally was nothing more than a respite within a deep downward trend that has further to go.
“We’re in a full-fledged bear market,” said Paul Desmond, president of Lowry Research Corp., a stock-research firm in North Palm Beach, Fla., calling Tuesday’s gain “just a mini-rebound, an inflection point toward lower prices.”
Jim Paulsen, chief investment strategist of Wells Capital Management, was encouraged that the S&P; held above the nadir it reached in August.
“This could be the low for this crisis,” he said.
With the banking sector battered in recent months by the sub-prime crisis and resulting credit crunch, Citigroup’s ability to secure a capital injection raised hope that others might be able to do the same if they needed to.
“The Citi deal is certainly a relief after a series of negative news on Monday with respect to the financials,” said Todd Salamone, director of trading at Schaeffer’s Investment Research.
Funds such as Abu Dhabi’s “that have plenty of cash may be viewed as a potential rescuer given the balance sheet troubles the banks are having. A weak dollar makes it that much more possible.”
Still, the market displayed vulnerability to any sign of a sagging economy, and that caused another day of big swings.
The S&P; 500 index climbed 21.01 points, or 1.5%, to 1,428.23, creeping back into positive territory for the year. The Dow closed at 12,958.44 after being up nearly 250 points.
The Dow and the S&P; 500 finished down 8.5% and 8.7%, respectively, from their record highs set seven weeks earlier. On Monday, they were down at least 10% from the Oct. 9 peaks.
The Nasdaq composite index gained 39.81 points, or 1.6%, to 2,580.80, and the Russell 2,000 index of smaller-company stocks rose 8.20 points, or 1.1%, to 743.27.
Advancing issues outpaced decliners by nearly 3 to 2 on the New York Stock Exchange.
Government bond yields rose. The benchmark 10-year Treasury note rose to 3.93% from 3.84% late Monday.
Gold prices fell as the dollar rebounded.
Crude oil futures dropped $3.28 to $94.42 a barrel on the New York Mercantile Exchange.
Among financial stocks, Citigroup rose 52 cents to $30.32, JP Morgan Chase jumped $1.89 to $42.35, Comerica gained $1.49 to $42.54 and Bear Stearns was up $4.39 to $95.43.
Mortgage giant Freddie Mac rallied $1.23 to $25.73 in regular trading but slipped to $25.45 after hours, when the company said it cut the dividend on its stock by 50%. The move had been expected.
Wells Fargo added 34 cents to $29.83 in regular trading but fell to $28.55 after hours, when the bank said it would take a $1.4-billion charge for potential losses on home equity loans.
Investors continued to sell some financial issues, including bond insurance firms that insure mortgage-backed securities. Ambac Financial tumbled $2.23 to $21.79, and MBIA slumped $2.60 to $30.46.
Morgan Stanley and Merrill Lynch rallied despite being downgraded to “sell” by Standard & Poor’s, which said further deterioration in the mortgage securities market had added to pressure on the value of the firms’ asset-backed securities.
Morgan Stanley jumped $1.85, or 3.9%, to $49.80. Merrill gained $1.84, or 3.6%, to $53.07.
* Many home builders continued to slide. KB Home fell 73 cents to $18.92, and Pulte Home was off 8 cents to $9.08.
* Drug stocks attracted buyers. Merck rallied $1.35 to $58.94, and Eli Lilly rose $1.24 to $50.91.
* Coca-Cola rose $1.25 to $62.98, its highest close since 2000.
* Los Angeles-based Aecom Technology sank $3.85, or 12%, to $27.14 despite issuing a forecast for earnings within the range of analysts’ expectations.
* Overseas, key stock indexes fell 0.6% in Britain, 0.5% in Germany, 0.4% in France and 1.5% in Hong Kong. Shares rose 0.6% in Japan.
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