The Wall Street Journal-20080201-Dow Rebounds- But Loses 4-6- In Wild Month- A 207-53-Point Gain Does Little to Improve January Performance

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Dow Rebounds, But Loses 4.6% In Wild Month; A 207.53-Point Gain Does Little to Improve January Performance

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Upbeat comments from bond insurer MBIA sent stocks sharply higher yesterday, but the Dow Jones Industrial Average still finished an unruly month down 4.6%, its worst January performance since 2000.

January ordinarily is one of the year's strongest months, with an average gain of 1.1%. Since the Dow's 1896 inception, January declines have led to full-year losses 64% of the time.

The latest month's gyrations reflected the anxiety that now sits on the market's surface.

Investors are uncertain whether the economy will sink into recession or skirt it, and whether stocks are bottoming out of a decline that began last summer, or ready for a new downturn. Good news can send the Dow up 200 points in minutes, only to be followed by bad news that erases the gains and leaves stocks down -- or vice versa.

"Investors are trying to sort out the conflict between their fears about where the economy is going and the prospect of some very good valuations and the likelihood that the economy will get much better in the next six to 12 months," said Bruce McCain, who helps oversee $30 billion as head of the investment strategy team at Cleveland's Key Private Bank, an arm of KeyCorp.

After urging clients last year to move as much as 15% of their portfolios into cash, Mr. McCain said, his team is looking for an opportunity to shift some of that back to stocks. But he said he worries that stocks could go lower before they recover, and he isn't making big new purchases yet.

"We would prefer to see some more settling of the dust and then take some more aggressive positions," he said.

Amid that kind of uncertainty, the Dow yesterday rebounded from Wednesday's 37-point decline, rising 207.53 points, or 1.67%, to 12650.36. That left it 10.7% below the Oct. 9 record of 14164.53. Trading was heavy.

The Dow has recovered significant ground since Jan. 22, when it finished below 12000, 15.5% off the record. But the Dow remains sharply down for the October-January period, when stocks ordinarily are at their strongest.

Investors are unsure whether to pay more attention to the weakening economy and trouble in the banking system, where multibillion-dollar writeoffs have become the norm, or to the sharp interest-rate cuts announced by the Federal Reserve in an effort to keep the economy out of recession.

Yesterday, stocks began with a 192.92-point drop, as jobless claims came in heavier than expected, spurring recession fears. But indexes quickly turned upward, and then took off on the MBIA news.

In news after regular trading hours that could affect stocks today, however, Google announced disappointing fourth-quarter results. The stock fell nearly 7% in after-hours trading.

The Standard & Poor's 500-stock index was down 6.1% for the month, its worst January since 1990. The Nasdaq Composite Index, down 9.9% on the month, had its worst January since its inception in 1971.

Bond investors remained jittery, finishing the month by sending money toward the relative safety of Treasury bonds, pushing down yields. The beleaguered dollar managed a small recovery on the euro.