Tags: Stocks | Dow | economy

Wall Street's Wild Ride Makes History: 4 Straight 400-Point Turns

Thursday, 11 August 2011 12:55 PM

Lurching higher in its week of whiplash, Wall Street recorded one of its biggest gains of all time Thursday after investors seized on a few signs that the economy might just be able to avoid a new recession.

The Dow Jones Industrial Average rose 423.37 points, or about 4 percent, to close at 11,143.31. It had been up 549 points in the final hour. It had already fallen 634 points Monday, risen 429 Tuesday and fallen 519 Wednesday. Never before has the Dow had four 400-point swings in a row.

The S&P 500 was up 52, or 4.6 percent, at 1,172. The Nasdaq was up 111, or 4.7 percent, at 2,493.

The pieces of news that sent Wall Street rocketing higher were not exactly blockbusters: Cisco Systems said its profit was better than expected, the job market got a little better, and France tried to raise confidence in its shaken banking system.

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But this is a week in which any move by the market -- higher or lower -- seems to touch off an investor stampede. So it was on Thursday, when stocks shot higher at the opening bell and never turned around.

Carlton Neel, who manages about $2 billion as a senior portfolio manager at Virtus Investment Partners, said investors are so scared of being late to a rally or a sell-off that they are trading in herds.

"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."

The four days of trading this week have been the wildest for the market since the financial crisis during the fall of 2008. Each day has instantly taken a place in Wall Street history. The Dow's losses on Monday and Wednesday were its sixth- and ninth-largest by points, and its gains on Tuesday and Thursday were the 10th- and 11th-largest.

The Standard & Poor's 500 index has risen or fallen at least 4 percent each day. That has not happened on four consecutive days since November 2008, the depths of the crisis.

It's only the third time since 1934, said Kevin Pleines, an analyst at Birinyi Associates. The first was October 1987 -- including the day known as Black Monday, when the S&P plunged more than 20 percent.

On Thursday, American investors got an encouraging report before the market opened when European stock markets turned around their losses and had one of their best days in recent weeks.

The leaders of Germany and France, the biggest economies of the nations that use the euro currency, announced they will meet Tuesday to discuss the financial crisis on the continent.

The stocks of French banks have been hammered because of concerns they will be hit with massive losses from European sovereign debt they hold. One European nation after another has struggled with debt, with Spain and Italy the latest.

France is trying to assure financial markets that it will not be downgraded from AAA, as the United States was. All three leading credit rating agencies reaffirmed the top rating for France. American investors have worried about a chain reaction that hurts the United States because large U.S. banks have loans to European banks.

An hour before the U.S. markets opened, the government reported that the number of people filing for unemployment benefits fell below 400,000 for the first time since April.

When the opening bell rang, technology stocks led the market higher. Cisco Systems, the world's largest maker of computer equipment and a tech bellwether, rose more than 15 percent after it reported profit that was better than Wall Street expected. It also said its revenue this quarter would be better than expected.

It was three weeks ago, on July 22, when the stock market began a long losing streak. Investors were worried mostly about the showdown in Washington over whether to raise the nation's borrowing limit.

Then came one sign after another that economic growth was much slower than analysts had thought, in addition to growing worries about the debt crisis in Europe and the stability of European banks.

During those three weeks, the Dow is down almost 1,600 points, or about 12 percent. It is still up 70 percent since March 9, 2009, its lowest point after the 2008 financial crisis.

President Barack Obama acknowledged this week's wild market swings and made another attempt to calm Americans who have watched their retirement accounts and other investments shrivel since mid-July.

The president toured a plant in Holland, Mich., that makes batteries for hybrid cars and trucks and said he understands that the volatility "makes folks nervous" and has hammered savings accounts.

He reeled off a list of challenges for the economy -- unrest in the Middle East, an earthquake in Japan that disrupted American manufacturing, the European financial crisis and lingering damage from the Great Recession.

But he declared: "There is nothing wrong with our country. There is something wrong with our politics."

Standard & Poor's cited dysfunction in the American political system, not just the nation's long-term debt, when it stripped the United States of its top-flight AAA credit rating last Friday.

Even after the downgrade, investors have found U.S. Treasury bonds and bills irresistible, seeing them as a haven of safety during an uncertain time.

The demand has pushed up the price of U.S. debt, which has lowered yields.

On Thursday, the Treasury sold $16 billion worth of 30-year bonds at a 3.75 percent yield, the lowest borrowing rate for the government on that security since March 2009.

Yields for shorter-term American debt rose, but that appeared to be a response to the huge rally in stocks. Yields usually rise when the stock market has a big day.

Gold fell $32.80 per ounce to $1,751.50 Thursday. It had rocketed above $1,800 per ounce for the first time on Wednesday as stock markets tumbled around the world.

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Lurching higher in its week of whiplash, Wall Street recorded one of its biggest gains of all time Thursday after investors seized on a few signs that the economy might just be able to avoid a new recession. The Dow Jones Industrial Average rose 423.37 points, or about 4...
Thursday, 11 August 2011 12:55 PM
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