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Stocks Stop the Bleeding

Robert Holmes

Stocks in New York endured a back-and-forth morning Wednesday before enough bargain hunters emerged to push the market into positive territory following the prior session's mammoth selloff.

The Dow Jones Industrial Average gained 52.39 points, or 0.43%, to 12,268.63, but finished below its highest level of the day.

At its worst, the Dow was lower by 28 points and, at its best, the blue-chip index was better by more than 130 points. Out of 30 components, 17 finished higher. Procter & Gamble (PG Quote) was the best performer, up 3.7%.

The S&P 500 added 7.78 points, or 0.56%, to 1406.82, and the Nasdaq Composite gained 8.27 points, or 0.34%, to 2416.13.

On Tuesday, a global selloff sent the major U.S. averages to some of the worst single-day point losses they've ever seen. The Dow plunged 416.02 points, or 3.29%, to 12,216.24, its biggest one-session decline since the market reopened six days after the terrorist attacks of Sept. 11, 2001.

Briefly, the Dow was down as much as 546 points.

The Nasdaq sank 96.65 points, or 3.86%, to 2407.87, and the S&P 500 tumbled 50.33 points, or 3.47%, to 1399.04. Sellers unloaded shares with conviction, and the New York Stock Exchange traded record volume.

"Overall, our gains today weren't too bad and the market acted well," said Jay Suskind, head of institutional equity trading with Ryan Beck & Co. "There was a lot of emotion yesterday but it looks as though the sky isn't falling now. The debate now resumes over the strength of the economy and its effect on corporate profits."

Even with the gains, the Dow and S&P 500 remain down for the year following the previous day's drop.

For February, the Dow dropped 353 points, or 2.8%, its worst monthly performance since April 2005. The S&P 500 lost 32 points, or 2.2%, snapping an eight-month winning streak. The Nasdaq finished the month with a loss of 51 points, or 2.1%.

Roughly 3.86 billion shares changed hands on the Big Board. Advancers beat decliners by a 5-to-3 margin. Volume on the Nasdaq reached nearly 2.65 billion shares, with winners outpacing losers 8 to 7.

A large part of the blame for the huge drop a day earlier went to a selloff in overseas equities, particularly in mainland China, that preceded the U.S. session. Markets around the world were deep in the red again, with the notable exception of a bounce in China.

The Shanghai and Shenzhen 300 Index, coming off a 9% dive, closed up 3.5%.

Elsewhere, however, traders were contending with heavy losses. Tokyo's Nikkei 225 lost 2.9% to 17,604, and Hong Kong's Hang Seng shed 2.5% to 19,652. South Korea's Kospi gave up 2.6%, and Singapore's Straits Times Index surrendered 3.7%.

That weakness spread to Europe, where the London FTSE 100 was down 1.8%, the Frankfurt Xetra DAX was off 1.5% and the Paris Cac 40 fell 1.3%.

"The market was overdue for a shakeout," said Larry Wachtel, senior market analyst with Wachovia Securities. "We had gone eight months without a correction. The magnitude of the correction was overdone, however. The Chinese market that precipitated the decline has come back, so the question is whether we can follow suit."

Treasury prices faltered after the prior day's surge. The 10-year note was off 10/32, yielding 4.55%, and the 30-year bond slumped 19/32, yielding 4.67%.

While no relief was found in the prepared testimony from Federal Reserve Chairman Ben Bernanke, who spoke before the House of Representatives about long-term fiscal challenges, the question-and-answer session yielded soothing comments regarding the central bank's outlook.

"The Fed has been closely monitoring the markets. They seem to be working well, and working normally," said Bernanke, describing his reaction to the previous day's plunge. "My view is that taking all the new data into account, there is no material change in our expectations for the economy since I last reported to Congress."

Meanwhile, fresh government data showed that the U.S. economy grew at a weaker rate during the fourth quarter than previously reported. The Commerce Department said gross domestic product rose 2.2% last quarter, up from the advance reading of a 3.5% annual pace. The latest reading matched expectations.

Core consumer price inflation rose 1.9%, annualized, during the fourth quarter, revised lower from 2.1%.

The GDP report is the second of three that will ultimately be released on the fourth quarter.

Shortly after the opening bell, the Chicago purchasing managers' index showed a decline to 47.9 in February from 48.8 in January. Though the Chicago PMI specifically discusses manufacturing activity in the Midwest, it's closely watched for clues about the overall stability of the nation's factory sector.

Additionally, the Census Bureau said new-home sales plummeted 16.6% to 937,000 annualized units. Economists had anticipated a slight decrease to 1.09 million annualized units from 1.12 million in December.

"We got two tests for the market since the open in the form of the Chicago PMI index and new-homes sales data," said Al Goldman, chief market strategist with A.G. Edwards. "After yesterday's extreme bloodletting, the market will hopefully continue to show resilience. We're testing the mettle of this market."

On the corporate news front, Home Depot (HD Quote) offered disappointing sales guidance for fiscal 2008, saying the residential housing market probably won't improve until at least the second half of this year.

Home Depot lost 23 cents, or 0.6%, to close at $39.59. Rival Lowe's (LOW Quote) fell by 67 cents, or 2.1%, to $32.57.

Sprint Nextel (S Quote) posted quarterly results that were in line with estimates, and the phone company said this year's revenue should also be around what analysts are expecting. Shares of Sprint jumped 84 cents, or 4.6%, to $19.29.

As for the day's research calls, JPMorgan upgraded Boeing (BA Quote) to neutral from underweight but cut its rating on Lockheed Martin (LMT Quote) to underweight from neutral.

Boeing added 0.2% to $87.37. Lockheed shed 0.2% to $97.35.

ThinkEquity raised Research In Motion (RIMM Quote) to buy from accumulate, and Merrill Lynch downgraded Deutsche Bank (DB Quote), Lehman (LEH Quote) and other brokers to neutral from buy.

RIM was higher by 1.4%, and Deutsche tacked on 0.2%. Lehman, on the other hand, lost 1.1%.

Crude futures rose following the latest weekly inventory report from the Energy Department. The near-month April contract reversed early losses and ended higher by 33 cents at $61.79 a barrel. Natural gas lost 23 cents to $7.30 per million British thermal units.

Last week, crude inventories increased by 1.4 barrels. Distillate supplies fell by 3.8 million barrels, while gasoline stocks slipped by 1.9 million barrels.

Metals prices finished with declines. Gold dropped $14.70 to close at $672.50 an ounce, and silver was lower by 45 cents at $14.23 an ounce.