Wall Street soars 938 points as government pledges bank aid
Published Tuesday October 14th, 2008
NEW YORK - Wall Street stormed back from last week's devastating losses Monday, sending the Dow Jones industrials soaring a nearly inconceivable 936 points after major governments' plans to support the global banking system reassured distraught investors. All the major indexes rose more than 11 percent.
The market was expected to rebound after eight days of precipitous losses that took the Dow down nearly 2,400 points, but few expected this kind of advance, which saw the Dow by far outstrip its previous record one-day point gain, 499.19, set during the waning days of the dot-com boom. The Standard & Poor's 500 index also set a record for a one-day point gains.
There were cheers and applause on the floor of the New York Stock Exchange at the closing bell, and trading was so active that prices were still being computed several minutes after the closing bell.
Still, while the magnitude of Monday's gains stunned investors and analysts, few were ready to say Wall Street had reached a bottom. The market is likely to have back-and-forth trading in the coming days and weeks - and may well see a pullback when trading resumes Tuesday - as investors work through their concerns about the banking sector, the stagnant credit markets and the overall economy.
The Wall Street surge will be good news for the Canadian stock maket, which was closed Monday for the Canadian Thanksgiving holiday. Last week, the TSX lost more than 16 per cent of its value, one of the worst weeks ever for the Canadian market, on investor worries about falling commodity prices and a spreading economic recession.
John Lynch, chief market analyst for Evergreen Investments in Charlotte, N.C., said Monday's rally was encouraging but he doubted it signalled the worst has passed.
"My screen is completely green and I love that, but I'm not doing any backflips yet. We still have many challenges up ahead," Lynch said.
The market did appear to take heart when the Bush administration said it is moving quickly to implement its US$700 billion rescue program, including consulting with law firms about the mechanics of buying ownership shares in a broad number of banks to help revive the stagnant credit markets and in turn get the economy moving again.
Neel Kashkari, the assistant Treasury secretary who is interim head of the program, said in a speech Monday officials were also developing guidelines to govern the purchase of soured mortgage-related assets. He gave few details about how the program will actually buy bad assets and bank stock.
Jim King, chief investment officer at National Penn Investors Trust Co., said the fear that took hold of the markets last week was overwrought and could signal that a bottom is near. When selling turns so frenetic that it hits a broad swath of stocks indiscriminately, as it did last week, many market watchers say a market low is at hand. That creates opporunity, King noted.
Still, King cautioned that any market rebound likely will be choppy.
"We're not through the woods. We think there is collateral damage from this debacle." King pointed to an increase in unemployment and nervousness among consumers that could, for example, hurt retailers and in turn, take stocks lower.
According to preliminary calculations, the Dow rose 936.42, or 11 per cent, to 9,387.61. The Dow's previous record for a one-day point gain was 499.19, or 4.93 per cent, on March 16, 2000.
Broader stock indicators also jumped Monday. The S&P 500 index advanced 104.13, or 11.58 percent, to 1,003.35; it was the biggest point gain ever for the S&P 500, eclipsing the 66.33, or 4.76 per cent, jump it had on March 16, 2000. It was the biggest percentage gain for the index since March 15, 1933, when it surged 16.6 per cent.
The Nasdaq rose 194.74, or 11.81 percent, to 1,844.25, its 10th biggest point gain; during the dot-com boom, the index soared as much as 324.83 in one day. Its percentage gain Monday was second to the 14.2 per cent logged Jan. 3, 2001, the same day that the Nasdaq set its record for a one-day point gain.
About 3,030 stocks advanced on the New York Stock Exchange, while only about 160 declined - a reversal from last week, when declining stocks overwhelmed the gainers. But the trading volume of 1.82 billion shares was lighter than it had been last week, suggesting there was less conviction in the buying than during last week's selling.
Wall Street was cheered by word from the Bank of England that it would use up to $63 billion to help the three largest British banks strengthen their balance sheets.
The Bank of England, the European Central Bank and the Swiss National Bank also jointly announced plans to work together to provide as much short-term funding as necessary to help revive lending.
After a series of weekend meetings in Washington of heads of the Group of Seven nations, the gains in global markets signaled that investors found comfort from the actions and pledges coming from government officials.
The surge in stocks comes after a dismal week on Wall Street that erased an estimated $2.4 trillion in shareholder wealth. The Dow, after eight consecutive daily losses that totaled just under 2,400, or 22.1 per cent, finished at its lowest level since April 2003, and also suffered its worst weekly percentage loss ever, a fall of 18.2 per cent.
Meanwhile, the S&P 500 and the Nasdaq each lost 15.3 per cent last week.
Recoveries from past crashes have taken considerable time. When the market crashed Oct. 19, 1987, sending the Dow down 508 points to 1,738.34, the blue chips had lost 938 points, or 36.1 per cent, since reaching a then-record close of 2,722.42 on Aug. 25, 1987. It took just over 15 months for the Dow to get back to its pre-crash level, and almost two years to the day - Aug. 24, 1989 - to reach a new closing high, 2,734.64.
The Dow has an even larger percentage drop to regain this time. By Friday's close, the average had fallen 5,713 points, or 40.3 per cent, from its record finish of 14,165.43 a year earlier, on Oct. 9, 2007. More recently, it has had fallen 2,970, or 26 percent, from its close before the Sept. 15 collapse of Lehman Brothers Holdings Inc., the event that triggered the freeze-up in the credit markets and that sent stocks plunging.
Investors have worried that banks' reluctance to lend to one another would imperil economic activity by making it harder and more expensive for businesses and consumers to get a loan. The mid-September bankruptcy of Lehman Brothers Holdings Inc. exposed major fault lines in the credit market as investors lost money on bad debt. That triggered a tightening of lending conditions.
Investors in Asia and Europe also grabbed stocks after last week's rout and the weekend moves by governments to bolster investor confidence.
In Asia, Hong Kong's Hang Seng index surged 10.2 per cent. Markets in Japan were closed for a holiday. In Europe, Britain's FTSE 100 jumped 8.26 per cent, Germany's DAX index rose 11.4 per cent, and France's CAC-40 surged 11.2 per cent.
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