Rebound: Dow Closes Up 299

January 23, 2008 1:14:24 PM PST
Wall Street bounced around in extremely volatile trading Wednesday, as bargain hunters entered the market and lifted stocks up from their steep losses. The Dow Jones industrials shot up nearly 220 points in late trading after falling more than 320 earlier. Volatility has become a hallmark of Wall Street's performance in recent months, and there's no sign of it letting up.

"Volatility is certainly the norm now and not the exception," said Art Hogan, chief market strategist at Jefferies & Co. "We have had 14 trading days so far this year and only two of them have been without a triple-digit swing. Three of those days have had 300-point swings."

The Fed's decision Tuesday to lower its federal funds rate by the wide margin of 0.75 percentage point to 3.5 percent has been met with some skepticism, but perhaps gave intrepid investors a reason to buy the severely dented stocks in the financial sector. Rate cuts will eventually boost margins for banks and other lenders, which have been working to lower costs and boost cash levels through layoffs and stock sales.

Moreover, the billions of dollars in mortgage-related losses suffered by the financial companies contributed to months of selling on Wall Street.

Citigroup Inc. rose $2.40, or 10 percent, to $26.80, and another Dow component, JPMorgan Chase & Co., rose $5.09, or 12.5 percent, to $45.95.

The market could be seeing a massive shift, said Steve Goldman, chief market strategist at Weeden & Co.

"The early leaders in a market recovery tend to be banks, REITs (real estate investment trusts) and homebuilders as these are the groups that typically would benefit first from a turnaround. And those have been the market leaders this week," Goldman said. "What has happened is the Fed is flooding the system with liquidity and eventually we should see some traction in the economy. And stocks tend to respond first."

In afternoon trading, the Dow was up 224.68, or 1.88 percent, at 12,195.87 after having been down 323.29 in earlier trading.

Broader stock indicators also turned positive. The Standard & Poor's 500 index rose 19.76, or 1.51 percent, to 1,330.26, and the Nasdaq composite index rose 18.92, or 0.83 percent, to 2,311.19.

Advancing issues were ahead of decliners by about 3 to 1 on the New York Stock Exchange, where volume came to a heavy 2.44 billion shares.

At this point, it is unclear whether the stock market is close to a bear market or has bottomed out. January remains on pace to log its worst January ever. Still, buying, like selling, can feed on itself and investors want to be sure they don't miss out on a rally. What needs to be seen is whether these gains will easily be knocked down again.

Bond prices turned lower as stocks rebounded. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell in earlier trading but then recovered to 3.55 percent, up from 3.41 percent late Tuesday.

The dollar was mixed against other major currencies, while gold prices fell.