Wall Street turned in another volatile performance today, with the Dow rebounding from a 260 point loss and shooting up above the 9,000 level, only to give up its gains in the last hour of trading.
Wall Street turned in another volatile performance today, with the Dow Jones industrial average rebounding from a 260-point loss and shooting up above the 9,000 level, only to give up all its gains in the last hour of trading.
The Dow closed down 127.04, or 1.4 percent, at 8,852.22 after climbing as much as 300 points earlier in the session. Broader stock indicators were down moderately. The Standard & Poor’s 500 index was off 5.88, or 0.6 percent, at 940.55, and the Nasdaq composite index was down 6.42, or 0.4 percent, at 1,711.29.
The expiration of options contracts today, lackluster economic data and signals of easing in the credit markets tugged the market in different directions throughout the session. Still, the Dow traded within a narrower range than it has in much of the past two weeks.
The market began the session uneasy after the government said new home construction dropped by more than expected last month to the lowest pace since early 1991. But investors’ mood seemed to pick up as lending rates for bank-to-bank loans eased, indicating some bank fears about not being repaid by borrowers is easing. Demand for safe-haven investments like Treasury bills also decreased.
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The London interbank offered rate, or Libor, for three-month dollar loans fell to 4.41 percent from 4.50 percent on Thursday, the fifth consecutive day of declines.
“I think we’re beginning to get a slightly better feeling in the credit market,” said Peter Cardillo, chief market economist at Avalon Partners, a New York brokerage house, pointing to the move in Libor. “I’m sure we’ll still have a strong bear grip to the market, but I do believe the market was way oversold. I do believe we’ve made a bottom.”
It’s been an erratic week on Wall Street, with the Dow soaring 936 points on Monday, slipping moderately Tuesday, sinking 733 points Wednesday, and then rallying 401 Thursday. The volatility is not providing investors with much relief, but it is a welcome change from last week’s relentless plunge, during which the Dow logged its worst week ever and Wall Street lost about $2.4 trillion in shareholder wealth.
“Sort of like a rubber bank that gets stretched too far, the markets have a tendency to bounce back once they’ve moved too far in one direction,” said Michael Sheldon, chief market strategist at RDM Financial Group in Westport, Conn.
He said signs of easing in the credit markets indicate that the government’s efforts to revive bank lending could be working and that investor pessimism could be easing.
“Just a couple of weeks ago many thought we were heading back to the Great Depression and heading off a cliff.”
The credit markets have been gradually improving after moves by governments around the world, particularly plans to buy stakes in private banks to boost their lending. Demand remains high for Treasury bills, regarded as the safest assets around, an indication that there is uncertainty lingering in the markets.
David Dietze, president at Point View Financial Services in Summit, N.J., contends that much of the market’s whipsaw moves in the past month — particularly the heavy selling at times — have come as hedge funds and mutual funds were forced to sell positions because some shareholders were cashing out.
“These hedge funds are getting hit by redemptions, their credit lines are being pulled and they are having to sell furiously,” he said. “Selling begets selling, which begets selling, which begets more selling.”
While Dietze sees risks for the economy, he questions whether the rapidity of the stock market’s retreat signals the pullback was overdone.
“We have a credit crunch which is morphing into a general recession and certainly a lot of the economic data points down but still, to come in this week and see the markets down 20 percent — basically a bear market within a bear market just this month — you wonder if there isn’t just this massive overreaction,” he said.
A rise in oil prices helped energy companies, some of which had weighed on the market earlier in the week as oil showed steep declines. Light, sweet crude rose $2 to settle at $74.30 a barrel on the New York Mercantile Exchange. On Thursday, it sank to a 14-month low on worries about a deep global recession obliterating fuel demand.