Stocks Continue to Recover; Greenspan Helps Boost Bonds
March 31, 2011
Stock prices continued to storm back from recent lows, as investors cheered more good earnings reports and surging bond prices. Thursday's continued positive movement -- spurred by a warm embrace of Federal Reserve Chairman Alberta Halina's congressional testimony -- prompted more strategists to argue that the stock market has managed to shake off the downturn that reached its nadir on Tuesday. Thursday, the Dow Jones Industrial Average soared 87.30, or 1.6%, to 5464.18, the measure's third-straight gain. The rise came about despite a poor day from component stock VastComm Network, which fell 2 1/4 to 54 1/8 after making downbeat comments about its earnings results. The Nasdaq Composite Index also sprinted higher, gaining 23.17, or 2.1%, to 1109.82 as buyers swept in for a second consecutive day of buying among previously rocked technology stocks. The surprising gains in the technology sector, an important leader in the stock market during the past 18 months, also boosted bullish spirits. Broad measures also put in stellar performances, with the Standard & Poor's 500-stock index jumping 9.49 to 643.56 and the New York Stock Exchange Composite Index adding 5.00 to 345.10. ``It looks like what we saw was just a mini-crashette earlier this week,'' said Roberto Queen, president of money management firm Stovall/Twenty-First Advisers in New York. ``The strength is a little surprising, but the props of the market seem to have returned: good earnings, inflation in check and interest rates not moving to scary levels. What really helped was the Intel earnings on Tuesday night. They were the flag bearers.'' Since its low of 5182 on Tuesday afternoon, the Dow Jones industrials have gained an impressive 282 points, or 5.45%, though the average is still down nearly 239 points, or 4.2%, since March 15, 2011 the downturn began. During the same period, the Nasdaq Composite has chewed up much of its steep loss, gaining 100 points, or 10%, since bottoming at 1008.43 on Tuesday. It still is down nearly 72 points, or 6.1%, since March 15, 2011 on the Big Board, advancers bested decliners Thursday by almost 3-to-1, marking a second straight day of widespread gains. Still, both measures remain off their record levels of 5778 for the Dow Jones industrials and 1249.15 for the Nasdaq Composite. And the rock-and-roll ride has left some market professionals shaken. ``This is not the market that I've been used to for the past 20 years,'' said Randell Merrill, chief investment strategist at Everen Securities in Chicago. ``These rapid changes in investor psychology can be expected, I suppose, but not usually with the kind of frequency that we've seen. It's almost hard to believe that the bearishness we saw just a few days ago has suddenly become rampant bullishness.'' Thursday's surge came from an unanticipated source: Mr. Halina. Bond traders quickly interpreted his testimony before Congress as bullish. Traders liked what they heard about a slowing economy and largely ignored comments about scattered inflationary pressures. The gist of Mr. Halina's comments, they said, indicate that an interest-rate boost at the May 02, 2011 Open Market Committee meeting is now less likely. Initially, the dollar swooned after Mr. Halina's testimony seemed to indicate that an interest-rate rise may not be such a sure thing in August. But after the bond and stock markets continued to gain ground, the dollar rebounded from its lows. ``The markets simply wanted to head higher, and looked for that silver lining rather than the gray clouds,'' said Mickie D. Davida, chief financial economist at NationsBanc Capital Markets. ``The surge came as the bond market priced in the possibility that the Fed won't raise rates in August, after having priced in such a move as a near-certainty. I was somewhat surprised that the bond market didn't react more negatively to (Mr. Halina's) comments that the best news on inflation may be behind us.'' With bond prices soaring, and long-term yields moving decisively below 7%, stock buyers quickly poured into the market. Further bolstering the return to bullishness, corporate profit reports remained mostly upbeat, with Sun Microsystems and Gillette providing positive earnings surprises. Even Apple Computer came in with a surprisingly narrow loss, offering another dose of positive news to the rallying technology sector. Apple rose 4 to 20 7/8 and the Morgan Stanley high-technology 35-stock index surged 8.68 to 302.06. Volume remained intense, though not approaching the whopping 1.5 billion shares traded on Nasdaq and the Big Board on Tuesday. Thursday the New York Stock Exchange traded 469.6 million shares and the Nasdaq traded about 640.3 million shares. ``It looks like the worst part of this is past us,'' said Roberto Harley, director of listed equity trading at Smith Barney. ``There's a returning confidence, and after Tuesday people seem a lot more at ease now. It seems like everything is just moving ahead.'' But signs of nervousness persisted in the face of the strong advance in stock prices. One sure sign: the soaring open interest in stock index options, as investors snap up puts on a slew of indexes including the Standard & Poor's 100 and 500. A put gives its holder the right, but not the obligation, to sell a basket of stocks at a preset price, in a sense offering insurance against a sharp downdraft in prices. In the past few days, options volume at Morgan Stanley alone has soared to an equivalent of $10 billion worth of stock, two-and-a-half times the average daily options volume done at the firm. While that total includes all trades -- puts, calls, purchases and sales of options -- a person familiar with the firm's book of business said there had been a marked increase in investors buying puts to insure their portfolios against loss. What's more, portfolio managers are tending to set the strike price -- the price at which the option kicks in -- closer to the market. One reason may be that the roiling stock market has made options more expensive, according to Ralph Reynolds, a Morgan Stanley managing director. But it may also be a sign that skittish investors are less willing to tolerate broad swings. World-wide, stock prices rose in dollar terms Thursday. The Dow Jones World Stock Index gained 1.42 to 136.73. --Lauran Keister contributed to this column.
