Stocks stage recovery
Wall Street advances after choppy session, thanks to falling oil prices and a bounce in technology and financial services shares. Alcoa reported after the close.
NEW YORK (CNNMoney.com) -- Stocks surged Tuesday, with falling oil prices and a stronger dollar giving investors an incentive to scoop up financial services and other shares hit in the recent selloff.
The major gauges seesawed in the morning on a weak housing report, earnings jitters and more questions about the financial sector. But news that the Federal Reserve may give banks more time to access emergency funds got stocks moving higher.
Investors also responded to a more than $5-a-barrel plunge in the price of oil, a that decline that helped spark a broader stock turnaround late in the session. In particular, airlines and other companies that depend directly on fuel benefited, sending shares of the Dow Jones Transportation average up by 5%
"We're seeing something today that we've really been looking for, which is a bit of a reprieve in energy prices," said Dean Barber, president at Barber Financial Group.
However, he said that for stocks to make a bigger move forward in the weeks ahead, oil prices would need to come down a lot more than they have.
Alcoa (AA, Fortune 500) reported weaker quarterly earnings of 66 cents per share on lower sales of $7.6 billion reflecting the impact of higher costs. However, results topped analysts' expectations and shares gained 3% in after-hours trading.
"Earnings are not going to be as bad as some people think, outside of financials," said Joe Clark, market analyst at Financial Enhancement Group. He said that technology results will be generally positive and energy will continue to benefit from the surge in fuel prices during the second quarter.
On the move: Stocks slipped Monday on talk that mortgage backers Fannie Mae and Freddie Mac may need to raise more capital. But Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) shares managed gains Tuesday, bolstering a recovery in the financial sector.
Merrill Lynch (MER, Fortune 500) shares rose as investors shrugged off a Wachovia note that said the bank could face more writedowns related to bad mortgage debt and may also need to raise more capital.
Ambac Financial (ABK) rallied 52.5% after the bond insurer said it has enough liquidity to meet its commitments going forward.
IndyMac Bancorp (IMB) plunged 38% after saying late Monday that it has stopped taking new loan submissions in its main lending business and plans to cut 3,800 jobs to raise capital.
Among other movers, VMWare (VMW) slumped 24% after the business software maker cut its sales forecast and said it was replacing its CEO. EMC (EMC, Fortune 500), which owns a majority stake in the company, slumped 11.6%.
Market breadth was positive. On the New York Stock Exchange, winners beat losers two to one on volume of 1.72 billion shares. On the Nasdaq, advancers topped decliners by more than two to one on volume of 2.52 billion shares.
Fed speak: The Federal Reserve may allow troubled banks to access emergency funds directly from the Fed through 2009, chairman Ben Bernanke said Tuesday at a mortgage lending forum.
Separately, Richmond Fed President Jeffrey Lacker, speaking in the afternoon, said that downside risks to economic growth have diminished and that growth will pick up next year, according to reports.
Housing market woes continue: The number of homes under contract to be sold in May fell 4.7%, according to a real estate trade group. The decline topped forecasts and followed an unexpected rise in sales in the previous month. (Full story).
Other markets: In the bond market, Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.88% from 3.90% late Monday.
In currency trading, the dollar rose versus the euro and the yen.
COMEX gold for August delivery fell $5.50 to settle at $923.30 an ounce.
Eye on the bear: The S&P 500 dipped into bear market levels early Tuesday after ending a hair above those levels Monday. A bear market is defined as a drop of at least 20% off the cyclical highs - in this case, hit in October. The Dow has been in a bear market since last week and the Nasdaq has been in one since late January.