Dow Takes Giant Leap as Bailouts Snap Gloom
Last week's gloom turned into euphoria as investors sent the Dow Jones Industrial Average up 11%, the biggest one-day gain since 1933. It was the fifth-largest percentage gain ever, and it came immediately after an 18% weekly decline, the worst such drop in the Dow's 112-year history.
The head-snapping shift in sentiment, spurred by global plans for governments to rescue banks through direct capital injections, left investors debating whether this marked the end of the past year's frightening bear market, or just a temporary respite.
History tells a mixed story of rallies like Monday's. Of the five past one-day gains of 10% or more, two marked the end of bear markets, in 1987 and 1933. But three -- in 1929, 1931 and 1932 -- proved short-lived, and were followed by further declines. Because of that, market historians were reluctant to make definitive judgments about the one-day event.
"We don't know yet whether the bear market is over, but we do know about the medium term," says Phil Roth, chief technical market analyst at Wall Street brokerage firm Miller Tabak + Co. "This is a big clean-out, so we will get some recovery here now."
"People can say, 'Whew, we survived the financial crisis.' But then we have the issue of the recession, and we don't know how deep that will be," he says.
The Dow surged 936.42 points to 9387.61, its largest one-day point gain ever. Monday's session ended eight consecutive trading days of losses, and wiped out almost all the blue-chip index's losses from the last three days of last week. The Dow finished just below Tuesday's close.
Even so, the Dow remains down 34% from its record 14164.53, hit Oct. 9, 2007, and down 13% in October alone. It is at a level it first reached in January 1999.
As Wall Street veterans tried to figure out what the day meant, they had to pull out their history books. For most of the day, it looked like the biggest one-day rally since Oct. 21, 1987 -- just after the crash. But after a late-day 300-point surge, Monday's gain surpassed that 1987 rally.
Some noted that the heavy buying occurred on Columbus Day, when the main U.S. bond markets were closed. That meant that investors couldn't get a clear idea of how the surge would affect the debt markets, which have been behind much of the financial trouble. And while the price-swing was enormous, total trading volume of New York Stock Exchange stocks was below average for this volatile month. At 7.12 billion shares, it nevertheless was the 15th-heaviest trading day ever.
Investors got more good news after trading ended. Word surfaced that the Bush administration's plan would include investing roughly $250 billion in banks, providing guarantees of bank debt, and increasing the insurance on certain bank deposits, according to people familiar with the plans. Bank-rescue plans unveiled Monday in Europe helped lift the U.S. stock market. In Asia Tuesday morning, Tokyo's Nikkei Stock Average was up 12% in early trading, after being closed for a holiday Monday.
Source : WSJ
The head-snapping shift in sentiment, spurred by global plans for governments to rescue banks through direct capital injections, left investors debating whether this marked the end of the past year's frightening bear market, or just a temporary respite.
History tells a mixed story of rallies like Monday's. Of the five past one-day gains of 10% or more, two marked the end of bear markets, in 1987 and 1933. But three -- in 1929, 1931 and 1932 -- proved short-lived, and were followed by further declines. Because of that, market historians were reluctant to make definitive judgments about the one-day event.
"We don't know yet whether the bear market is over, but we do know about the medium term," says Phil Roth, chief technical market analyst at Wall Street brokerage firm Miller Tabak + Co. "This is a big clean-out, so we will get some recovery here now."
"People can say, 'Whew, we survived the financial crisis.' But then we have the issue of the recession, and we don't know how deep that will be," he says.
The Dow surged 936.42 points to 9387.61, its largest one-day point gain ever. Monday's session ended eight consecutive trading days of losses, and wiped out almost all the blue-chip index's losses from the last three days of last week. The Dow finished just below Tuesday's close.
Even so, the Dow remains down 34% from its record 14164.53, hit Oct. 9, 2007, and down 13% in October alone. It is at a level it first reached in January 1999.
As Wall Street veterans tried to figure out what the day meant, they had to pull out their history books. For most of the day, it looked like the biggest one-day rally since Oct. 21, 1987 -- just after the crash. But after a late-day 300-point surge, Monday's gain surpassed that 1987 rally.
Some noted that the heavy buying occurred on Columbus Day, when the main U.S. bond markets were closed. That meant that investors couldn't get a clear idea of how the surge would affect the debt markets, which have been behind much of the financial trouble. And while the price-swing was enormous, total trading volume of New York Stock Exchange stocks was below average for this volatile month. At 7.12 billion shares, it nevertheless was the 15th-heaviest trading day ever.
Investors got more good news after trading ended. Word surfaced that the Bush administration's plan would include investing roughly $250 billion in banks, providing guarantees of bank debt, and increasing the insurance on certain bank deposits, according to people familiar with the plans. Bank-rescue plans unveiled Monday in Europe helped lift the U.S. stock market. In Asia Tuesday morning, Tokyo's Nikkei Stock Average was up 12% in early trading, after being closed for a holiday Monday.
Source : WSJ
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