Market Swears Off Pessimism for a Day

Even in a bear market, it's sometimes hard to be a bear. Wednesday must have been a particularly frustrating day for hardcore skeptics, as major stock proxies rallied despite a host of potentially destabilizing developments.

The Dow Jones Industrial Average closed up 0.9% to 7775.60, the S&P 500 ended up 1% to 829.85 and the Nasdaq Composite rose 0.5% to 1314.40.

The seeds for a possible swoon included Treasury Secretary John Snow's comments about the dollar after the close of trading Tuesday. Snow said he is "not particularly concerned about" the recent decline in the dollar. "There's nothing unusual about this, nothing alarming about it. It's within normal ranges. I don't see anything troubling about it."

Currency traders did find the secretary's statement troubling. The dollar tumbled Wednesday, hitting a four-year low vs. the euro while the Dollar Index fell 0.83 to 98.30, breaching its Feb. 5 intraday low, which had technical significance.

"The importance of [Snow's] comments does not only lie in the significance of their consequences but simply in their content," commented Ashraf Laidi, chief currency strategist at MG Financial Group. "The chief spokesman of the most liquid currency in the world [saying] he is 'not concerned' on the same day the currency had taken a new beating does lead us to question whether the new Bush economic team is drifting away from the eight-year long 'strong dollar policy' first espoused by former Secretary Robert Rubin."

Many question the validity or practical meaning of the 'strong dollar policy' itself. But repeated declarations of the mantra by Rubin and his successors kept the threat of intervention fresh in traders' minds.

Despite the dollar's overnight retreat and a declaration by France, Germany and Russia that they will not support a second U.N. resolution authorizing the use of force, major averages traded in a tight range on either side of break-even until about 11 a.m. EST, when they rallied sharply.