POSTED: 4:32 a.m. HST, Aug 11, 2011
LAST UPDATED: 11:34 a.m. HST, Aug 11, 2011
NEW YORK >> Wall Street's wildest week since 2008 careened into another 400-plus point move for the Dow today. This time, stocks shot up after investors saw small signs that the economy might not be headed into another recession.
Fewer Americans joined the unemployment line last week, and a technology bellwether said revenue could grow faster this quarter than analysts expected. The news pushed prices on long-term Treasurys down, and gold fell from its record high.
The Dow Jones industrial average rose 423.37 points.
During a calm market, such a large move would rank as the Dow's biggest in months. For this volatile week, it's more than 100 points off the average. The Dow plunged 634 points Monday, soared 429 points Tuesday, and dove 519 points Wednesday. It's the first time the Dow has ever had four straight 400-point days.
Carlton Neel, who manages about $2 billion as a senior portfolio manager at Virtus Investment Partners, said investors are so scared of being the last one out of the market in a downturn or the last one in during a rally that they are stampeding in herds, creating more volatility.
"Fear tends to be a much more powerful emotion, and the sell-offs tend to be more violent than the rallies," he said. "But people are worried about missing the bottom, so you will have a few melt-ups along the way." That's because memories of the last meltdown in 2008 are still fresh in the mind of many investors.
In October 2008, the Dow had four days of 400-point plus gains and four days of similar losses. That includes a 936-point surge on Oct. 13 after European central banks pledged more aid to banks and the U.S. Treasury offered details about its plan for U.S. banks. Two days later, a report showed retail sales had fallen more than anticipated and the Dow dropped 733 points.
On Friday, the government will say how much people spent at retailers during July. Economists expect a 0.4 percent rise in retail sales, according to FactSet.
This week's ricocheting is reminiscent of 2008, when the financial crisis battered stocks. The last time the Standard & Poor's 500 index rose or fell by 4 percent in four straight trading days, as it has just done, was Nov. 19, 2008 through Nov. 24, 2008, according to Kevin Pleines, an analyst at Birinyi Associates. It's only the third time since 1934. October 1987, including the day known as Black Monday when the S&P plunged more than 20 percent, was the first instance.
The Dow climbed 3.9 percent today, to 11,143.31 The S&P 500 rose 51.88, or 4.6 percent, to 1,172.64. The Nasdaq rose 111.63, or 4.7 percent, to 2,492.68.
The surge came after the government said the number of people filing for unemployment benefits for the first time fell to 395,000 last week, down 7,000 from a week earlier. It's the first time the number has dropped below 400,000 in four months.
Analysts said it may be a sign that the job market is slowly improving after its three-month slump. Job growth slowed to an average of 72,000 in May, June and July. In the previous three months, employers added 215,000 jobs per month, on average.
"It's the first scrap of economic data we've had recently that says the idea that we're going into another recession may be overdone," Neel said.
In the last few weeks, investors have grown more worried about the economy. The government said last month that it grew at its slowest pace in the first half of 2011 since the recession ended in 2009. Unemployment is still above 9 percent.
Technology stocks helped lead stocks higher. Cisco Systems Inc.'s profit for the latest quarter topped analysts' expectations. Cisco is considered a bellwether for the tech industry because it is the world's largest maker of computer networking equipment. The company also said revenue may grow more quickly in the current quarter than analysts were anticipating. Cisco soared 16 percent. As a group, tech stocks in the S&P 500 rose 4.5 percent.
Financial stocks also rebounded from their steep drop Wednesday, up 6.3 percent after a 7.1 percent drop a day earlier.
Media conglomerate News Corp., which owns Fox News and The Wall Street Journal, rose 18.1 percent. Its earnings, reported late Wednesday, were stronger than analysts expected.
Department store chain Kohl's Corp. rose 7.2 percent after it said profit rose 17 percent last quarter on stronger sales of store-label brands.
In recent weeks, investors largely ignored the strong profits that companies have reported since July. Of the 452 companies in the S&P 500 that have reported second-quarter results so far, total earnings are up 12 percent.
Investors have been more focused on worries about the weak U.S. economy and Europe's debt problems.
The leaders of France and Germany, the biggest Eurozone economies, said they will meet next week to talk about how to solve the region's financial difficulties. Worries that the continent's debt problems could hurt the banks that own European government bonds have weighed heavily on financial stocks and the broader market. Pain for European banks could lead to more trouble for the U.S. banking industry and the economy because global financial firms are so closely linked.
Reports also circulated today that European officials were considering a temporary ban on selling stocks short, which is a way that traders bet a stock will fall.
Rumors have been a force driving the market in the last week. On Friday, speculation that Standard & Poor's may downgrade the U.S. from its top AAA credit rating helped knock down stocks. It turned out to be correct.
This week, the scuttlebutt has centered on European banks, French ones in particular. The head of France's central bank said Thursday that the country's banks are solid, and he blamed "unfounded rumors" for big drops in their stocks.
Prices for longer-term Treasurys fell, as investors felt less need to put their money in investments considered safe. The yield on the 10-year Treasury note rose to 2.33 percent from 2.11 percent late Wednesday. A bond's yield rises when its price falls.
Investors had been pouring money into Treasurys earlier in the week, briefly knocking the 10-year note's yield to a record low of 2.03 percent Tuesday. Treasurys have held onto their reputation as a safe place to put money even after S&P cut the U.S. credit rating to AA+ last Friday.
Gold fell $32.80 per ounce to $1,751.50 today. It had rocketed above $1,801 per ounce for the first time on Wednesday as stock markets tumbled around the world.
CME Group raised the amount of money that investors must put up to buy a gold contract on its COMEX exchange by 22 percent late Wednesday.
The Vix index, a measure of investor fear, fell 9 percent to below 40. The index shows how worried investors are that the S&P 500 will drop over the next 30 days. It does that by measuring prices for stock options that investors buy to help protect their portfolios. The Vix is still more than double where it was in early July and remains up 22 percent for the week.
The Dow's climb today pulls the average further away from bear market territory: The Dow is now 13 percent below its high for the year, reached on April 29. A drop of 20 percent would mean the bull market that began in March 2009 has turned into a bear, a period of stock declines.
All three major U.S. stock indexes are still down between 1.6 percent and 2.6 percent for the week. For the year, the Dow is down 3.8 percent, the S&P is down 6.8 percent and the Nasdaq is down 6 percent.