Stocks fight back
Major gauges recover after Tuesday's brutal selloff; oil prices spike on inventory report.
NEW YORK (CNNMoney.com) -- Stocks surged early Wednesday afternoon, recovering some ground after an aggressive two-session selloff sparked by worries about the ongoing turmoil in the credit and mortgage markets.
The Dow Jones industrial average (up 138.60 to 13,180.45, Charts) gained 1 percent 2-1/2 hours into the session. The broader S&P 500 (up 16.31 to 1,448.67, Charts) index added 1.2 percent and the Nasdaq Composite (up 32.03 to 2,532.67, Charts) gained 1.3 percent.
All three major gauges slumped over 2 percent Tuesday, as investors mulled the minutes from the last Federal Reserve policy meeting, weak reports on housing and consumer confidence, and ongoing credit and mortgage market woes.
Stocks had fallen Monday too, and after a two-session battering, investors were ready to dip their toes back in to equities on Wednesday.
Gains were broad based, with 29 out of 30 Dow components rising, led by Home Depot (up $0.90 to $35.95, Charts, Fortune 500), Hewlett Packard (up $1.22 to $48.10, Charts, Fortune 500), Intel (up $0.82 to $24.78, Charts, Fortune 500), General Motors (up $0.82 to $30.00, Charts, Fortune 500) and United Technologies (up $1.70 to $73.70, Charts, Fortune 500).
While the bounce Wednesday was certainly a relief to investors, it probably doesn't signal a new period of constancy for markets, said Greg Church, president at Church Capital.
"You're going to continue to see these huge gyrations like yesterday and today," Church said. "At some point, like yesterday, we get a little oversold and things get cheap, but then you get rumors about the financial sectors and it's back down again."
Church said that there won't be any stability until the next Fed policy meeting on Sept. 18, or until the markets hear something from the Fed that suggests a rate cut.
Stocks got battered over the summer amid worries about the tightening credit market and the subprime mortgage market. After bottoming in mid-August, stocks have recovered from the recent lows on bets that the Federal Reserve will cut short-term interest rates at the next policy meeting.
Those bets were sparked after the central bank cut its discount rate, which affects bank loans. Yet now investors are looking for it to cut the fed funds rate, which affects consumer loans.
The minutes from the Aug. 7 Fed policy meeting, released Tuesday, seemed to shake up investors, in that they suggested that at that time, the bankers were not close to cutting rates.
Investors will be looking to Fed chairman Ben Bernanke to provide more hints about this when he speaks Friday at an economic symposium in Jackson Hole, Wyoming.
Seagate Technology (up $1.29 to $25.75, Charts) shares rose after the company boosted its fiscal first-quarter earnings and revenue forecast late Tuesday, citing stronger demand and better prices. Seagate makes computer hard-disk drives.
Dow component Altria (up $0.38 to $69.45, Charts, Fortune 500) said it will spin off its Philip Morris international unit, confirming market speculation. Altria also said it was boosting its quarterly dividend by 8.7 percent to 75 cents per share.
On the downside, PDL Biopharma (down $4.98 to $18.62, Charts) slumped nearly 20 percent, in unusually active Nasdaq trade, after saying Tuesday that it was withdrawing its 2007 financial guidance and divesting its marketed drugs. The biotech also said that an experimental drug in late-stage trials failed.
Market breadth was positive. On the New York Stock Exchange, winners beat losers by more than 4 to 1 on volume of 515 million shares. On the Nasdaq, advancers beat decliners 9 to 5 as 700 million shares changed hands.
Treasury prices fell, raising the yield on the 10-year note to 4.50 percent from 4.51 percent late Tuesday. Bond prices and yields move in opposite directions.
In currency trading, the dollar fell versus the euro and rose against the yen.
U.S. light crude oil for October delivery rose $1.48 to $73.21 a barrel on the New York Mercantile Exchange after the government's weekly report showed a bigger-than-expected drop in oil and gas supplies.
COMEX gold for December delivery rose $1.20 to $674.70 an ounce.