Stocks rally 11% on bargain hunting

NEW YORK -- U.S. stocks soared almost 11% Wednesday as investors shrugged off the worst reading ever on consumer confidence and snapped up beaten-down shares amid hopes that central banks around the world will lower borrowing rates further.

The Dow Jones industrial average enjoyed its second-biggest point gain and sixth-biggest percentage gain ever, rallying 889.35 points, or 10.9%, to close at 9,065.12.

Broader stock indexes also rose sharply. The Standard & Poor's 500 index gained 91.59 points, or 10.8%, to 940.51. And the technology-stock dominated Nasdaq composite jumped 143.57 points, or 9.5%, to 1649.47.

Despite the big moves, Wall Street pros treated the rally with caution and skepticism because the stock market has yet to post two up days in a row this month and has been unable to hold the gains of other big rallies in recent weeks.

On Oct. 13, the Dow skyrocketed to a record gain of 936.42 points, or 11.1%, but gave back all of the gains and more in the 10 sessions that followed.

That lack of follow-through and a still-weak economy has many Wall Street pros wondering if this is simply a big rally in an ongoing tough environment.

"This is another one-day wonder," says Chris Orndorff, a portfolio manager at Payden & Rygel. "The economy is still in bad shape, the credit markets are still frozen, and while stocks may be cheap, earnings are heading lower not higher."

Orndorff stresses that there are always big rallies in bear markets.

"We saw 20% rallies in both 2001 and 2002, yet both were miserable years for stocks," says Orndorff. "This is just a bear market rally. While the actions of policymakers have provided a light at the end of the tunnel, the end of the tunnel is still a long way away."

The Dow remains 36.0% off its record high, while the S&P 500 down 39.9% from its peak. The Nasdaq is off 42.3% from its 2007 high but far off its all-time high set during the dot-com doom..

On a more positive note, the major U.S. stock indexes continued to show resilience by closing far above their intra-day panic lows hit on Oct. 10. The Dow, for example, is now 1,183 points higher than the trough of 7882.51 hit on Oct. 10. Similarly, the S&P 500 is now 101 points, or 12% above its intra-day low.