After four straight days of losses, the stock market came roaring back on Tuesday. Falling oil prices, a favorable earnings outlook from Wal-Mart (WMT 45.97, +2.65), and reassuring comments on subprime exposure from several financial firms at the Merrill Lynch Financial Conference provided the fuel for the rally that was helped along by short-covering activity and a sense the market had gotten oversold.
Recall that it was last Wednesday when the S&P 500 dropped 45 points in a session where virtually nothing worked from a stock standpoint. Today the complete opposite held true as virtually everything worked from a stock standpoint.
Providing today's leadership were the financial (+4.9%) and technology (+4.0%) sectors, which drew significant bargain hunting interest. E*Trade Financial (ETFC 5.00, +1.45), which plummeted nearly 60% on Monday, surged 40% on Tuesday; meanwhile, Apple (AAPL 169.96, +16.20), which had fallen 20% in the last four sessions, jumped 11% on reports China Mobile is in talks to sell the company's iPhone.
Goldman Sachs (GS 233.04, +18.33) played a large role in the financial sector rally when it said again at the Merrill Lynch Conference that it won't be announcing a write-down. Separately, JPMorgan Chase (JPM 45.05, +2.66) CEO, Jamie Dimon, said at the same conference that he thinks his bank is "fine" on CDO and subprime exposure and that he doesn't think the subprime problem is a big deal for the U.S. economy.
The investment banking group soared 6.8% and was the best-performing industry group in the trading session.
From a sector standpoint, the laggard today was utilities (+0.7%), but that is understandable given its defensive orientation. To this point, the consumer staples (+1.9%) and health care (+1.4%) sectors also trailed the broader market. Nonetheless, their gains were still significant and reflected the broad-based buying interest.
Wal-Mart was among the leading stocks in the Dow, as it received a handsome boost after topping third quarter EPS expectations by two cents and providing a fiscal 2008 EPS forecast that was ahead of the market's expectations.
The retailer's good news launched a rally in the retail stocks that have been among the market's hardest hit issues in the recent pullback that saw the S&P 500 drop nearly 9.0% from its Oct. 11 high. Even Home Depot (HD 29.12, +0.66) caught a bid after missing the third quarter consensus EPS estimate by a penny and warning earnings from continuing operations, on a 52-week basis, will decline as much as 11%.
The run on retailers was helped along by another sharp sell-off in oil prices, which fell 3.7% to $91.17 per barrel after the IEA reduced its global demand forecast for 2008. Oil prices are now down 8.0% from the high they hit last Wednesday.
The move in oil prices didn't hurt the energy sector, which gained 2.3%.
It should also be noted that the market extended its gains in the final half-hour, helped by a better-than-expected pending home sales report that showed a 0.2% increase for September versus an expectation for a 2.0% decline, and closed at its highs for the day. This action is a reversal of the activity in the past two sessions in which the market sold off in the final half-hour and closed at its lows.
With stocks in rally-mode, the Treasury market was on the defensive. The 10-year note dropped 13 ticks, raising its yield to a still-low 4.26%. |
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