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Stocks Stage Massive Rally

A surge in financials lifts blue chips, and the Dow bounces more than 600 points off its session low.

Updated from 4:04 p.m. EST

Blue chips erased heavy early losses and closed sharply higher Wednesday following a rally in financials, while tech stocks overcame the weight of a weak performance in

Apple

(AAPL) - Get Apple Inc. Report

to end with gains.

The

Dow Jones Industrial Average

fell by as many as 326 points during the session, but clawed back and vaulted up 298.98 points, or 2.5%, to 12,270.17.

Among winning components,

General Motors

(GM) - Get General Motors Company Report

surged 10.2%, and

Citigroup

(C) - Get Citigroup Inc. Report

rose 9%.

The

TheStreet Recommends

S&P 500

also finished in the black, rising 28.10 points, or 2.14%, to 1338.60. The tech-heavy

Nasdaq Composite

lagged by comparison, but it still gained 24.14 points, or 1.05%, to 2316.41. A drop in shares of Apple kept the tech side from fully participating in the bounceback.

By going out to the plus side, the major averages snapped a five-session losing streak.

"It clearly doesn't take much to spur the market to jump or fall drastically," said Bill Stone, chief investment strategist with PNC Wealth Management. "While valuation determines long-term performance, we believe the short term continues to be ruled by fear and greed."

Financial stocks soared after reports that New York state insurance regulators met with big banks and brokers to discuss raising capital for embattled bond insurers. The biggest of the group,

Ambac Financial

(ABK)

and

MBIA

(MBI) - Get MBIA Inc. Report

, climbed 71.9% and 32.6%, respectively.

Sector measures reflected the rebound. The Amex Securities Broker/Dealer Index rose 6.9%, the NYSE Financial Sector Index added 4.6%, and the KBW Bank Index was higher by 3.3%.

Among individual names,

Bear Stearns

(BSC)

,

E*Trade Financial

(BAC) - Get Bank of America Corp Report

,

JPMorgan Chase

(JPM) - Get JPMorgan Chase & Co. Report

and

Wells Fargo

(WFC) - Get Wells Fargo & Company Report

jumped 9% or more.

The rise in financials turned breadth positive for the day. On the

New York Stock Exchange

6.63 billion shares changed hands, as advancers topped decliners by a 12-to-5 margin. Volume on the Nasdaq reached 3.57 billion shares, with winners beating losers 3 to 2.

Robert Pavlik, chief investment officer with Oaktree Asset Management, said he wasn't certain the move would last. "A lot of the action is in stocks that have been shorted the most, like financials," he said. "The question now is if the low we saw today will hold. We've been waiting for a trading bottom so more money can come in off the sidelines."

Traders also contended with several disappointing reports from tech names. Following Tuesday's closing bell, Apple offered fiscal second-quarter guidance that was below analysts' expectations. Shares dropped 10.7% to $139.07 despite a banner first quarter for the iPod, Mac and iPhone maker.

Motorola

(MOT)

tumbled 18.8% to close at $10.01 after posting a fourth-quarter profit that fell sharply from a year ago. The handset maker also offered first-quarter guidance that was short of expectations.

Among other tech losers,

Google

(GOOG) - Get Alphabet Inc. Class C Report

,

Amazon.com

(AMZN) - Get Amazon.com, Inc. Report

,

Broadcom

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and

SanDisk

(SNDK)

were all lower by 5.5% or more.

Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

was one bright spot for technology after reporting a fourth-quarter profit that rose 13% from a year ago. Results beat the Thomson First Call average estimate for earnings. Shares of TI gained $1.32, or 4.6%, to $30.30.

Also on the bright side,

Pfizer

(PFE) - Get Pfizer Inc. Report

,

ConocoPhillips

(COP) - Get ConocoPhillips Report

,

Coach

(COH)

and

United Technologies

(UTX) - Get n.a. Report

exceeded estimates.

After the closing bell,

eBay

(EBAY) - Get eBay Inc. Report

,

Capital One Financial

(COF) - Get Capital One Financial Corporation Report

and

Qualcomm

(QCOM) - Get Qualcomm Inc Report

were reporting earnings.

European stocks were hit hard as the European Central Bank declined to follow the

Federal Reserve's

lead and cut interest rates. Germany's Xetra Dax fell 4.9%, the Paris CAC 40 lost 4.3%, and London's FTSE 100 was lower by 2.3%.

There was some positive news from Asia, as Hong Kong's Hang Seng saw its biggest point gain ever, rising 10.7% after two days of heavy selling. Japan's Nikkei 225 added 2%, and other indices in Australia, India, and Indonesia surged overnight.

On the economic front,

Bloomberg

reported that Merrill Lynch halved its forecast for U.S. growth and is now expecting that gross domestic product will rise 0.8% for the year.

U.S. Treasury prices reversed lower, having surged early in the session. The 10-year note was down 28/32 in price, pushing the yield to 3.54%. The 30-year bond was off 29/32 in price, yielding 4.25%.

Commodities were retreating. Crude oil slid $2.22 to close at $86.99 a barrel, and gold futures lost $7.20 to end at $883.10 an ounce.