Stocks gain in volatile trading after Thursday’s sell-off; Dow rises 125 points
The stock market notched a solid gain Friday that soothed investors’ frayed nerves after Thursday’s free fall — but the rebound left no consensus about whether the recent slide in share prices is over.
The Dow Jones industrial average finished with a 125-point gain after heavy buying in the final 20 minutes of trading outweighed two earlier bouts of selling.
The blue-chip indicator gave up 376 points Thursday as it and other major stock indexes dropped more than 10% from their late-April highs — the first such market “correction” since share prices began their long rally in March 2009 in the aftermath of the financial crisis.
Friday’s gains left the Dow down 9% from its April peak. Other indexes remained in correction territory.
The Standard & Poor’s 500, which rose 1.1% on Friday, is down 10.6% from its April high. The Nasdaq composite index is off 11.9% from its peak, and the Russell 2,000 index of small-company stocks remains 12.5% off its recent high.
Investors were relieved that Germany’s parliament approved its portion of a nearly $1-trillion financial bailout package for Greece and other troubled European countries. Some analysts had suggested that German lawmakers would reject the rescue plan, which faced strong public opposition.
That — and the absence of any bad news Friday — gave bargain hunters the confidence to step in late in the day.
But the volatile, back-and-forth trading — the Dow fell 156 points early on and swung nearly 280 points from low to high — illustrated the cross-currents buffeting the market. Bulls view the current situation as a buying opportunity, while bears worry that Europe’s problems eventually could infect the U.S. economy.
“You have a market that is struggling to find its footing,” said Richard Ross, a technical analyst at brokerage Auerbach Grayson in New York. “The market is so emotional right now.”
Financial stocks climbed 3.6% after the Senate’s passage late Thursday of a financial reform bill. Despite the potential threat to industry profits, investors appeared relieved at the prospect of an end to the regulatory uncertainty surrounding the sector.
European stock markets were mixed, with a key German index off 0.7% while Spanish shares gained 1.5%. The depressed euro rallied against the dollar for the third straight day.
Many market strategists say the outlook for the U.S. economy and corporate profits — and hence, for stocks — remains generally favorable.
Share prices “might dip a little bit lower [in the market], but companies are in really great shape,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald. “We’re going to see a far more robust bull market come out of this.”
Still, memories of steep losses during the financial crisis have put both professional and individual investors on edge.
“It’s really people saying, ‘I don’t want to get caught again in a 2008-style vacuum that takes me down but doesn’t let me get out,’ ” said Sam Stovall, chief investment strategist at Standard & Poor’s Corp. “What investors are working against is emotion, not fundamentals.”
Corrections are a normal occurrence during long-term rallies, Stovall said. In the last 60 years, every bull market has been interrupted in its second year by a pullback of about 10%, he said.
Bulls say investors who unloaded stocks during the bear market and have waited cautiously on the sidelines for the best time to get into the market should view the recent downturn as an opportunity.
“The problem with being in the waiting-for-a-correction camp is that when a correction comes, things look so bad that you don’t want to take advantage,” Ross said. “At some point you have to find a reason to get off the sidelines and get involved.”
