The New York Times-20080124-A Day of Sharp Swings- and a Final Gain

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A Day of Sharp Swings, and a Final Gain

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This week, investors were bracing for Black Tuesday. Instead, they got Whiplash Wednesday.

A day after the Federal Reserve slashed interest rates, averting a nasty nose dive in the market, Wall Street watched as the Dow Jones industrial average swung like a yo-yo, diving nearly 250 points in the opening minutes, spending the day in a series of rallies and swoons, then closing up -- way up -- with a gain of nearly 300 points to snap a five-day losing streak.

Market volatility is near its highest level in five years. In a three-hour span in the afternoon, the blue-chip index ricocheted by almost 600 points.

The market has this out-of-control feeling, and until the market sees some semblance of stability, it's going to continue to be very volatile, said Richard Sparks, senior equities analyst at Schaeffer's Investment Research.

The Dow closed up 2.5 percent at 12,270.17, a gain of 298.98 points, erasing its losses from Tuesday. The broader Standard & Poor's 500-stock index gained 2.1 percent, or 28.10 points, to close at 1,338.60.

For much of the day, the Nasdaq composite index traded in bear market territory, down more than 20 percent from its high in October, until a late recovery nudged the tech-heavy index back up to a 1.1 percent gain.

There were few obvious reasons for the market's mood swings. The session started with a plunge after Apple and Motorola, two technology heavyweights, issued lackluster profit forecasts, raising fears about the resilience of corporate earnings in the face of a likely recession.

The reports spooked investors and dragged down the technology sector; Apple shares declined 10 percent, and shares of Motorola fell by nearly twice that amount.

Apple is basically a bellwether, said David Kovacs, a quantitative strategist at Turner Investment Partners in Berwyn, Pa. If a company such as Apple cannot withstand a slowdown, then what is the fate of all other companies?

But the markets reversed course around midday. Shares of financial firms, beaten down by months of mortgage-related write-offs, rebounded as investors drove up the stock prices of companies like Citigroup and JPMorgan Chase & Company, which leapt more than 12 percent.

Investors were most likely lured by reports that New York State regulators would work with Wall Street to help rescue a group of bond reinsurers, whose woes have depressed financial stocks for weeks. The aid effort -- coupled with the Fed's aggressive interest rate cut, which was aimed at easing the current credit crunch -- might have made the financial sector more attractive, especially to bargain hunters.

Indeed, several analysts said on Tuesday that the market had been oversold after suffering one of the worst January starts on record. Investors were looking at opportunities to take advantage of the bloodbath we've seen since the beginning of the year, said Ryan Larson, senior equity trader at Voyageur Asset Management.

Companies that depend on consumer spending, one of last year's worst-performing sectors, benefited from the day's gains, as did home builders, which have been badly hurt by the housing downturn. Shares of the Lennar Corporation, one of the nation's largest residential developers, soared 13 percent on Wednesday, a welcome development after dropping 72 percent in the last year.

Still, some market watchers cautioned that in a time of great uncertainty -- with everything from corporate earnings to economic strength to Fed policy decisions shrouded in doubt -- a single day's gain does not make a trend. This rebound is probably only as good as the next economic release, said Russ Koesterich, an investment strategist at Barclays Global Investors.

And Sam Stovall, a strategist at S.& P., suggested that the market's steep swings and afternoon rally might have resulted from a simple rule of finance.

Even in a bear market environment, Mr. Stovall said, you can't fall every day.

For the most part, Asian stocks were calm as they opened Thursday, but started to move higher as the day went on. Major indexes in Australia, Hong Kong, Japan and Taiwan were all about 2 percent higher in midday trading. The Shanghai and Shenzhen exchanges were flat.

On Wednesday, however, global stocks remained highly volatile a day after the Fed's emergency interest rate cut. Asian shares gained sharply after a two-day mauling, and many European markets opened with modest gains, in part on hopes for a rate cut in Europe. But the chief European central banker, Jean-Claude Trichet, indicated in Brussels that no monetary easing was in the cards.

Mr. Trichet's remarks, combined with signals from the Bank of England, the Bank of Japan and others that they intended to hold rates steady, sent major European indexes sharply lower, and overnight trading in American index futures signaled that Wall Street would open lower as well.

At the close, the CAC 40 in Paris on Wednesday was down 4.3 percent, the DAX 30 in Frankfurt was down 4.9 percent and the FTSE 100 in London was off 2.3 percent.

Eric Chaney, chief economist for Europe at Morgan Stanley in London, said the market was impatient for a European rate cut, but that Mr. Trichet's comments were not quite as hawkish as some seemed to think.

The E.C.B. had a tightening bias previously, Mr. Chaney said, but Mr. Trichet left open the possibility of a move toward a neutral bias.

Following is the result of Wednesday's auction of four-week cash management bills:

[Illustration]PHOTO: An exerciser watching stock fluctuations at a health club in La Jolla, Calif. Shares of financial firms rebounded as investors sought bargains. (PHOTOGRAPH BY SANDY HUFFAKER FOR THE NEW YORK TIMES) (pg.C8)GRAPHS: Financial stocks rallied this week, but they have a long way to go to recover. (Source: Bloomberg) (pg.C1); The Dow minute-by-minute; The Favorites