Market Rebounds After Early Slide

May 25, 2010— -- After a rocky start to stock market trading Tuesday morning prompted by tensions in the Koreas and the spiraling European debt crisis, the Dow Jones Industrial Average rebounded from a 200-point slide to close above 10,000, erasing most of the losses in the final half hour of the session.

The Dow has not closed below 10,000 since February.

"The interconnectedness of global risk-taking in the financial markets is becoming increasingly apparent," said Keith McCullough, CEO of Hedgeye, a global macro research firm based in New Haven, Connecticut. McCullough has set his model portfolio at 0 percent U.S. stocks for the moment, explaining that his main benchmark, the Standard & Poor's 500, which like the Dow dropped 2 percent early on Tuesday before staging a comeback, would need to flirt closer to 1020 before he sees any bouncing back. The S&P actually finished up slightly on the day.

Mild Bounce

News of wobbly banks in Spain and continued concerns over the impact of financial reform legislation didn't help things when the market opened, although some traders began buying up JPMorgan and Goldman Sachs, sending the badly bruised financial sector higher. Fears over how severely bank trading and derivatives dealing might be affected have started to abate somewhat.

Meanwhile, there's a growing realization that staving off the chokehold of debt around the world will require sharp economic growth, explained Andrew Barber, who runs a money management and market research company called Waverly Advisors in Corning, New York.

"Volatility in the U.S. equity is the result of investors wrestling with the macro risk picture and underlying fundamentals of companies," he said. "Korea just adds to the uncertainty. The European leaders are not helping things by blaming market speculators for their problems while not doing anything to tackle them."

After a sharp dip off the open, stocks actually recovered somewhat by the end of the first hour as news reports surfaced regarding the situation in Korea. Troops in North Korea are said to not be on alert despite the growing tension with South Korea, according to a report on CNBC.

Andrew Ross, a trader and partner at First New York Securities, a Manhattan-based proprietary trading firm, said he was watching the financial reform process and the situation in Asia and seeing mitigating news reports that seem to be alleviating early gloom.

"Given the excess of negative political and economic news, the market is actually holding up reasonably well," he said.