Dow's 2nd best day ever
Dow rises 11% on big rally, but October is still shaping up to be one of the worst months in Wall Street history.
NEW YORK (CNNMoney.com) -- The Dow rallied as much as 906 points during Tuesday's session, as investors dove back into stocks near the end of one of the worst months in Wall Street history.
The Dow Jones industrial average (INDU) added 889 points after having risen as much as 906 points earlier in the session. It was the Dow's second-biggest one-day point gain ever, following a 936-point rally two weeks ago. The advance of 10.9% was the sixth-biggest ever.
The Standard & Poor's 500 (SPX) index gained 91.6 points or 10.8%, its second-biggest one-day point gain ever and its fifth-best one-day percentage gain.
The Nasdaq composite (COMP) rose 143.6 points or 9.5%. On a percentage basis, it was the fourth-best one-day gain ever for the tech-fueled Nasdaq. But on a point basis, it didn't crack the top 10.
The broad advance occurred as the two-day Federal Reserve meeting got underway, with a decision on interest rates expected Wednesday afternoon. Policymakers are widely expected to cut a key short-term interest rate.
Stocks ended Monday's session at the worst levels in more than five years, with the major gauges down more than 25% for October. Global markets had fallen too, as investors worldwide bailed out of stocks amid the credit crisis and weak economy.
After such a selloff, U.S. and global markets bounced back Tuesday. Wall Street briefly retreated in the midmorning after a report showed consumer confidence is at an all-time low, but investors recharged later in the session.
"There was nothing good happening there and then suddenly we saw this powerful rally take hold," said Phil Orlando, chief equity market strategist at Federated Investors. "You have to ask at what point does valuation become its own catalyst?"
He said that stocks have been so beaten down that investors are eventually going to decide enough is enough and that it's time to get back in. "I think we're right near that point, but I'm not sure today was it."
He said that at the very least, the advance shows that "Armageddon is off the table," as investors are now focused on recession as opposed to something worse.
Short-term challenges include the initial read on economic growth in the third quarter, due out on Thursday. Economists expect an 0.5% rate of decline after GDP grew at a 2.2% annual rate in the second quarter.
Next week's presidential election and October jobs report are also big potential momentum changers.
Looking for a bottom: The major gauges touched what could prove to be the lows for the bear market more than two-weeks ago, sparking a huge 936-point rally.
Since then, stocks have seesawed as lending tightened up and investor fears hit an apex. Last week, the CBOE Volatility (VIX) index, or the VIX, hit an all-time high just below 90. And record amounts of cash remain in money-market funds.
On Tuesday, the S&P 500 came within 6 points of that earlier trading low before bouncing back. Analysts said that from a technical perspective, this was a good sign.
"When you look at this in terms of valuation, volatility and investor sentiment, everything portends that a bottom has been reached or is near," said Matt King, chief investment officer at Bell Investment Advisors.
However, he said that a more extended rally would be dependent on seeing more of the hour-by-hour volatility washed out of the market.
The stock market tends to move in anticipation of where the economy will likely be six to nine months out. But with so little clarity on the depth of the recession, stocks are likely to keep seesawing for the time being, said Gary Webb, CEO at Webb Financial Group.
"I think the opportunity for a longer-lasting rebound is not far off, but there's still going to be a lot of craziness before that," he said.
On the move: Gains were across-the-board, with a variety of stocks rallying.
All but 10 of the S&P 500 gained Tuesday. All but three of the Nasdaq 100 non-financial stocks gained. All 30 Dow components climbed and all 30 posted gains of at least 6%.
Among the session's movers, Alcoa (AA, Fortune 500) rose 19% and was the biggest gainer on the Dow industrials. Citigroup (C, Fortune 500), General Motors (GM, Fortune 500) and Home Depot (HD, Fortune 500) all added at least 14%.
Component Boeing (BA, Fortune 500) rallied 15%. The aerospace maker and its union reached a tentative deal that could end the longest strike at the company in more than a decade.
Microsoft (MSFT, Fortune 500), Intel (INTC, Fortune 500), Cisco (CSCO, Fortune 500), Apple (AAPL, Fortune 500) and Oracle (ORCL, Fortune 500) were among the big tech stocks powering up the Nasdaq composite.
Market breadth was positive. On the New York Stock Exchange, winners topped losers four to one on volume of 1.73 billion shares. On the Nasdaq, advancers beat decliners by almost five to two on volume of 2.84 billion shares.
Banks and credit: A drop in lending rates helped drive the advance Tuesday, with investors continuing to welcome signs that government efforts to loosen up the credit market are starting to work.
The Federal Reserve started buying commercial paper Monday, short-term debt that businesses rely on for funding daily operations. Also Monday, the Treasury said it will start handing out $125 billion to nine banks this week to get credit moving again. The initiatives were all part of the $700 billion bank bailout plan to get banks lending to each other again.
The disruption in credit markets and lack of available lending over the last few weeks has exacerbated fears about a bigger economic slowdown. The lack of lending has made it harder for businesses and individuals to get critical loans.
The credit market had initially responded to some of the government's efforts, but lost momentum in the last few sessions as recession fears grew. On Tuesday, lending loosened up again, with Libor, the overnight bank-to-bank-lending rate, falling to 1.24% from 1.26% Monday, according to Dow Jones.
The 3-month Libor rate, or what banks charge each other to borrow money for three months, slipped to 3.47% from 3.51% Monday, also according to Dow Jones. (Full story)
Treasury prices slumped, raising the yield on the 10-year note to 3.77% from 3.68% late Monday. Treasury prices and yields move in opposite directions. (Full story)
Economic news: A key measure of consumer mood fell to an all-time low, a reflection of the dismal market performance and tough economic conditions. The Conference Board's Consumer Confidence index plunged to 38 in October from a revised 61.4 in September. Economists thought the survey would fall to 52, according to Briefing.com forecasts. (Full story)
Another report showed home prices in August fell for the 25th month in a row. Meanwhile, prices in 10 major markets tumbled a record 17.7% versus a year ago.
Other markets: The dollar gained versus the euro and the yen, reversing its recent trend.
U.S. light crude oil for December delivery fell 49 cents to settle at $62.73 a barrel, a 17-month low.
Gasoline prices fell another 3.9 cents overnight, to a national average of $2.629 a gallon, according to a survey of credit-card activity by motorist group AAA. It was the 41st consecutive day that prices have decreased. During that time, prices have fallen by $1.23 a gallon, or nearly 32%.
COMEX gold for December delivery fell $2.40 to settle at $740.50 an ounce.
Brutal month: Despite Tuesday's big rally, October is still shaping up to be one of the worst months on Wall Street ever.
As of Monday's close, the Dow had lost 2,675 points, or 24.7%, in October. Barring a massive rally over the next few sessions, the point loss will amount to the Dow's worst ever, according to Stock Trader's Almanac info going back to 1901. On a percentage basis, it's the Dow's fifth worst ever.
The S&P 500 had lost over 317 points, or 27.2%, and is currently on track to post its worst month ever on a point basis and third worst ever on a percentage basis, going back to 1930.
The Nasdaq was down 576 points, or 27.7%, tracking it's fourth-worst month ever on a point basis and its second-worst month on a percentage basis, going back to its inception in 1971. 
