-- Wall Street has passed another major test of the bear market lows, and frazzled investors can only hope that it will turn out to be the final exam.
The Dow Jones industrials Thursday shot up 553 points, or 6.7%, to 8835, a remarkable turnaround after threatening to set multiyear lows and further shake the confidence of shell-shocked investors.
Investors had nervously endured the market's scary early-afternoon sell-off, which dragged the Dow down as much as 317 points to 7965, putting it well below its bear market closing low of 8176 on Oct. 27.
But the fact the selling subsided there and the level acted as a springboard fanned hope a "bottoming process" was taking place now that the bear market low has withstood two big tests in a month. "It's encouraging," says John Derrick of U.S. Global Investors. "This is the kind of bottoming process you go through."
In such a volatile market, faith and confidence can be shaken in just one bad trading session. But investors are choosing to view the bounce back positively, because it was:
•A classic re-test. The Standard & Poor's 500 index tore downward and sliced below the 840 level that traders were nervously watching because it was the previous intraday bear market low. The S&P dropped as low as 819 before buyers came in to push up to a close of 911, up 59 points for the day. "Everyone in the world was hoping (it) was going to hold," says Bill Stone of PNC Wealth Management.
•Proof there are buyers tempted by current valuations. While buyers have been willing for weeks to sit on their hands and let cheap stocks get cheaper, there comes a point that valuations are too irresistible for experienced investors with cash to ignore, says Robert Maltbie of Singular Research. With $4 trillion parked in money markets, which is 40% of the S&P 500's valuation, there's plenty of cash out there to buy stocks at these levels, he says. "It's hard to say stocks are expensive," Stone says.
•Inclusive of even the beleaguered parts of the economy. The financial sector, at the epicenter of the credit and housing crunches, posted strong gains. The Financial Select Sector SPDR exchange traded fund, which tracks the sector, jumped 7.3%. Every industry group in the S&P 500 rose, Bridge Information says. "We needed the financials to rally," says Todd Leone of Cowen. "We tested the lows. Hopefully, that was it; we find a range and find a bottom."
But skeptics remain. The frenetic bounce back after the S&P 500 sliced through 840 with no validating economic news indicates "panic buying," says Joe Saluzzi of Themis Trading. Investors wounded by losses all year are terrified to miss out when the market does rally for real. "The real greed kicks in on days like these," he says. "Markets that rip up like these on no news are very suspect."
The Nasdaq composite index rose 97.49, or 6.50%, to 1,596.70.
Government bond prices fell as investors fled back into stocks. The three-month Treasury bill's yield rose to 0.20% from 0.13% late Wednesday, and the yield on the benchmark 10-year Treasury note rose to 3.84% from 3.67% late Wednesday. Higher yields indicate lower demand.
A barrel of light, sweet crude rose $3.12 to $59.28 a barrel on the New York Mercantile Exchange.
Advancing issues outpaced decliners by a 2-to-1 basis on the New York Stock Exchange, where volume came to 1.37 billion shares.
The dollar was mixed against other major currencies. Gold prices rose.
Overseas, Japan's Nikkei closed down 5.25% and Hong Kong Hang Seng fell 5.15%. In European trading, London's FTSE 100 was down 0.31%, Germany's DAX rose 0.62%, and France's CAC-40 added 1.10%.