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The Big Ben rally
Dow retakes 11,000 after Bernanke comments, IBM, J.P. Morgan results. Yahoo tumbles; oil sinks.
By Alexandra Twin, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Stocks surged Wednesday, with the Dow scoring one of its best days of the year, as investors bet that Fed Chairman Ben Bernanke's comments mean the central bank's two-year interest-rate hiking campaign is nearing an end.

After the close of trade, a slew of technology and telecom companies reported quarterly results, including Intel, which disappointed investors, and Apple, eBay and Motorola, which impressed market participants.

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The Dow Jones Industrial average (up 212.19 to 11,011.42, Charts) soared 212 points Wednesday, or nearly 2 percent. That pushed the blue-chip average back above the key 11,000 mark.

The advance gave the Dow one of its best days of the year, nearly matching the gain posted June 29 after the Fed raised interest rates for the 17th straight time.

The broader Standard & Poor's 500 (up 22.95 to 1,259.81, Charts) index jumped 1.8 percent, one of its ten best days of the year on both a point and percentage basis.

The tech-heavy Nasdaq composite (up 37.49 to 2,080.71, Charts) index added 1.8 percent, one of its ten best days of the year on both a point and percentage basis. The composite managed to shake off a big drop in Yahoo! after its second-quarter results and third-quarter outlook disappointed investors.

Treasury prices jumped, lowering the corresponding yields, and the dollar weakened. Oil prices slipped and the price of gold jumped.

"Today was a good day across the board, and as long as people believe that a pause (in interest rates) is on the way, stocks should be able to keep rising," said John Davidson, president and CEO at PartnerRe Asset Management.

As of 5:30 p.m. ET, Nasdaq and S&P futures pointed to a higher open for stocks Thursday, when fair value is taken into account.

However, Davidson added that the market is apt to continue seeing big one-day moves like what happened Wednesday and with last week's selloff, as investors seek to interpret each piece of news for what it says about interest rates.

Thursday brings the release of the minutes from the last Fed policy-setting meeting in June, as well as earnings from Dow stocks Honeywell and Pfizer. Other companies due to report results Thursday include Ford Motor, BellSouth and Nokia.

After the close Wednesday, Intel (Charts) reported quarterly sales that fell from a year ago and missed analysts' estimates, as well as earnings that fell from a year ago, but met estimates. The chipmaker also gave a current-quarter sales forecast that is short of forecasts, and shares fell 2 percent in extended-hours trading.

However, other after-news out of the tech sector was more encouraging.

Apple Computer (Charts) reported quarterly sales and earnings that rose from a year ago. Shares jumped 5.5 percent in extended-hours trading.

eBay (Charts) reported quarterly earnings that dipped from a year ago, but met estimates. The company also said it would buy back up to $2 billion of stock over two years, the first time the company has announced a share buyback plan. That sent shares 4.5 percent higher after the close.

Motorola (Charts) reported quarterly earnings and revenue that jumped from a year ago on strong cell phone sales. Shares jumped 2 percent in extended-hours trading.

Wednesday's market

Stocks gained ahead of Bernanke's semiannual testimony, delivered to the Senate Banking Committee, with blue chips getting a boost from strong results from IBM and J.P. Morgan Chase.

But the rally picked up steam in the mid- morning as investors took in the Fed chief's prepared comments and the dialog with lawmakers that followed.

Stocks were rallying in particular on the question-and-answer session, said Matthew Smith, portfolio manager at Smith Affiliated Capital. "[Bernanke] did really well on being more transparent and at saying what the Fed is looking at."

Among the highlights: Bernanke said he was concerned about inflation but that slowing economic growth should lessen some of the upward pressure on prices. At the same time, he added that a recession isn't likely.

"Equity markets are doing their little happy dance right now," said Michael Strauss, chief economist at Commonfund.

"Any implication that the Fed might be done or is done [raising rates] is going to be taken well by stock investors, particularly because we're in this rough period in terms of the geopolitical issues and oil prices," Strauss said.

But the advance was as much a "relief rally" after last week's steep selloff as a reaction to Bernanke, some analysts said.

Moving into late summer and the fall, stocks remain vulnerable. "You look at the broader trends - a weak dollar, higher energy prices, rising core inflation, a slowdown in corporate growth - and it all spells trouble for equity markets," Smith said.

A change in focus?

Although Bernanke said the Fed remains worried about inflation, investors chose to focus on his comment that slowing economic growth could mean inflation will stay under control.

"I think the comments begin to show a subtle change in his recognition that the economy is slowing, and that inflation - while we continue to see increases on the core side - is not as bad as had been thought," Strauss added.

If that's the case, investors were betting that the Fed may not need to raise rates much further, if at all.

The central bank has boosted the fed funds rate, a key overnight bank lending rate, 17 times since June 2004. It currently stands at 5.25 percent, with the next policy-setting meeting on tap for Aug. 8.

Stocks staged a comeback Tuesday after oil turned lower amid hopes for a cease-fire in the Middle East.

Oil prices fell further Wednesday after a government report showed a surprise rise in weekly crude and gasoline supplies.

U.S. light crude oil for August delivery fell 88 cents to settle at $72.66 a barrel on the New York Mercantile Exchange. Oil has dipped this week, after closing at an all-time high of $77.03 a barrel last Friday.

Treasury prices reversed course on Bernanke's comments, turning higher as investors bet rate increases were nearly done. That sent the yield on the benchmark 10-year note down to 5.05 percent from 5.13 percent late Monday. Treasury prices and yields move in opposite directions.

The dollar slumped against the yen and the euro.

COMEX gold for August delivery jumped $13.30 to settle at $642.80 an ounce, bouncing back after tumbling in recent sessions.

IBM, J.P. Morgan impress

Earnings news also supported stocks.

Dow component J.P. Morgan Chase (up $2.34 to $43.05, Charts) reported quarterly earnings of 94 cents a share, easily toping forecasts, and sending its stock up 5.8 percent.

Fellow financial leader Bank of America (up $1.51 to $49.95, Charts) also reported improved quarterly earnings that beat forecasts. Shares gained 3.1 percent.

The rally in those two stocks gave a boost to the broader financial sector, with the Philadelphia Bank (Charts) sector index adding 3 percent.

In the tech sector, IBM (up $1.81 to $76.07, Charts) reported quarterly earnings late Tuesday that rose and topped estimates. The stock jumped 2.4 percent.

Gains were broad-based, with 29 of 30 components of the Dow industrials surging.

Among the biggest gainers were Boeing (up $3.12 to $82.29, Charts), United Technologies (up $2.19 to $61.07, Charts) and Home Depot (up $1.22 to $34.35, Charts), all up close to 4 percent, and Hewlett Packard (up $1.30 to $32.25, Charts), up 4.2 percent.

On the downside, Yahoo! (down $7.04 to $25.20, Charts) tumbled nearly 22 percent after the No. 2 Internet search engine reported quarterly sales late Tuesday that rose from a year ago and missed estimates. The company also forecast third-quarter revenue that disappointed investors.

That dragged down the broader sector, with the Goldman Sachs Internet (Charts) index losing 0.9 percent.

Market breadth was resoundingly positive. On the New York Stock Exchange, winners trounced losers by nearly six to one as 1.86 billion shares changed hands. On the Nasdaq, advancers topped decliners by more than three to one on volume of nearly 2.37 billion shares.

On the economic front, the government said core consumer prices - excluding volatile food and energy - rose more than expected in June.

Overall consumer prices rose in line with forecasts and less than they rose last month. That was due to a temporary decline in oil prices.

But oil has climbed back near record highs in recent days amid the ongoing battle between Israel and Hezbollah militants in Lebanon.

A separate report showed that June housing starts and building permits slipped more than expected, reflecting the cooling in the housing market.

Correction: The earlier version of the story erroneously characterized Wednesday's Dow industrial gain as the biggest of the year on a point and percentage basis. CNNMoney.com regrets the error.


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