Dow's big bounce poses question: Will it last?
NEW YORK -- The two-day blue-chip bounce was big, it was unexpected and it may be a sign of better things to come for the battered stock market.
The Dow Jones industrial average, which has been mired in its first bear market in almost six years and seemed on the verge of a downward spiral Tuesday, has bounced back with consecutive gains of more than 200 points each. The two-day gain of 4.4% was the Dow's biggest since a 5.2% surge ended Oct. 15, 2002; that rally started just four days into the last bull market, which began Oct. 10, 2002.
The break in oil prices, which could provide a boost to cash-strapped consumers, coupled with the upbeat earnings alleviated fears that the economy was collapsing because of the decline in housing prices and the ongoing credit problems in the banking sector, said Timothy Vick, a portfolio manager at Sanibel Captiva Trust.
Financial services stocks, including banks and mortgage companies, which have been the hardest hit in the current swoon, enjoyed huge rallies for a second-consecutive session to lead the upward charge. Since lows hit in the past week, some financial stocks have posted gains ranging from 40% to more than 100%.
Brian Hicks, portfolio manager at U.S. Global Investors, says investors were cashing in profits from the big run-up in oil and redeploying them in beaten-down financial stocks.
It is common for stocks that have been beaten down a lot to post sizable gains in a short time span during bear markets. That's why Wall Street is hotly debating whether the rally signals a market bottom or is just a temporary rally in a long downtrend. "It's hard to say if this is the bottom," Vick says. "But it offers a glimpse of how stocks will react when the banking sector finally bottoms and we see light at the end of the tunnel."
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