Stocks surge on news from China, Spain
Reporting from Los Angeles and New York —
Is the “correction” over?
That question was on the minds of hopeful investors Thursday as global stock markets staged powerful rallies on an easing of worries about the European debt crisis.
The Dow Jones industrial average shot up 284 points, one day after closing below 10,000 for the first time since February.
The markets surged after the agency that manages China’s vast foreign-exchange reserves denied reports that it planned to lighten its holdings of European debt, including government bonds. Those reports had helped send share prices sliding late Wednesday on Wall Street.
Also on Thursday, Spain — one of the continent’s debt-burdened countries that are generating concern — approved a round of spending cuts intended to curb the government’s crushing budget deficits.
The twin developments boosted hopes that the world’s economies could escape painful fallout from Europe’s problems.
In the U.S., shares of companies in economically sensitive sectors such as technology, basic materials and manufacturing jumped as some investors regained the belief that the U.S. economy could continue its slow recovery from recession.
Some market watchers said Thursday’s advance signaled the end of the nearly five-week market slide that on Wednesday left the Dow down 11% from its April 23 high and the Standard & Poor’s 500 index off 12% from its late-April peak. Because the indexes had been down at least 10%, the recent downturn qualified as the first correction of the bull market that began in March 2009.
Thursday’s comeback means the Dow and S&P now are down only 8.4% and 9.4%, respectively, since late April.
“It confirms the fact that this correction is likely over, and the potential for this rally is to get [the market] back to the April highs,” said John Bollinger, head of Bollinger Capital Management in Manhattan Beach.
Others aren’t so sure, pointing out that stocks have fluctuated wildly lately as the market has strained to get a handle on the extent of the trouble in Spain, the largest European country to struggle with fiscal woes. They pointed out, for example, that the Spanish parliament approved the budget cuts by just a single vote.
Investors remain uneasy, said Hugh Johnson, chairman of Johnson Illington Advisors in Albany, N.Y.
“There’s still a bunker mentality,” he said. “They’re still very edgy and worried. The performance of the markets recently has intensified those worries, and you don’t get over that quickly.”
The Dow jumped 284.54 points, or 2.9%, on Thursday to 10,258.99. The S&P rose 3.3%, while the tech-heavy Nasdaq climbed 3.7%.
If the correction indeed has run its course, it didn’t provide a very long buying opportunity near the bottom — particularly for small investors, who have generally shied away from stocks in the last two years. The S&P bounced around its low point for only five trading days.
“For many people, if this rally gets going, they’re going to be stuck with the old problem: playing catch-up,” Bollinger said.
The news overseas overshadowed some disappointing U.S. economic reports.
The Commerce Department reduced its estimate of economic growth in the first quarter to 3%; analysts had expected a figure of 3.4%. Also, first-time claims for unemployment fell less than expected.
The next few days could determine whether the market pulls out of its downturn or slumps back into it, Johnson said.
“Everybody’s worried and asking the question: Will this rally hold? — because confidence depends very heavily on this rally holding,” he said.
