Turnaround Tuesday? Markets Bounce After Plunge

Stocks rose sharply Tuesday morning as the markets posted a modest rebound from a day that saw Wall Street lose $1.3 trillion in market value amidst a 777-point plunge on the Dow.

Stocks rose sharply Tuesday morning as the markets posted a modest rebound from a day ago, when Wall Street lost $1.3 trillion in market value during a 778-point plunge on the Dow.

Today's Market 

As of 10:40 a.m. EDT, the Dow Jones Industrial Average jumped 266.34 points, or 2.55%, to 10631.23. The broader S&P 500 Index added 36.71 points, or 3.32%, to 1143.13, while the Nasdaq Composite Index picked up 56.65 points, or 2.86%, to 2040.38. The consumer-friendly Fox 50 Index rose 28.36 points, or 3.47%, to 845.17

While the markets stopped bleeding, a cloud of uncertainty still hangs over Wall Street following the defeat of a $700 billion rescue plan in the House of Representatives. Tuesday's early rally lacked a clear catalyst other than a technical bounce following a steep descent. 

“I think mostly it’s technical in nature given the massive selloff yesterday,” said Steve Sachs, director of trading at Rydex Investments. “I think it’s just an extremely oversold position and I wouldn’t expect that [rally] to last very long without” a resolution.

Monday's losses were staggering, leaving all three major indexes with triple-digit declines. The 777-point drop was the sharpest single-day point loss in the Dow's history, leaving the benchmark index near three-year lows. It was the 17th largest percentage drop in the Dow's history.

The S&P 500 and Nasdaq Composite fared even worse. The broad S&P suffered its worst percentage loss since Black Monday of October 1987 and the Nasdaq Composite had its worst day since the bursting of the tech bubble in 2000. 

Financial conglomerate Citigroup (C), which swallowed Wachovia (WB) in a government-assisted deal a day ago, led the Dow higher Tuesday morning. Bank of America (BAC) and General Motors (GM) rose sharply as well. Tech giant IBM (IBM) was the only blue-chip stock failing to join in the early rally. 

“Obviously we are looking at a big bounce today. That’s just typical with these crazy crashes,” said Stephen Carl, head trader at Williams Capital.

The markets are focused solely on the rescue plan, said Carl.

“Anything else is pretty much secondary… I think economic numbers are out the window right now.”

While Congress is on break for a Jewish holiday on Tuesday, President Bush made new urgent pleas for lawmakers to pass legislation in an effort to avoid a financial meltdown.

“For the financial security of Americans, Congress must act,” Bush said in a televised address Tuesday morning. “Our economy is depending on decisive action from the government.”

Congressional leadership and the White House are expected to keep working on an alternative version of the rescue package when lawmakers return on Thursday. The bill, which was narrowly defeated, would have authorized the Treasury to buy and hold up to $700 billion of toxic assets that are stuck on banks' balance sheets. 

The action in Washington sent the VIX, an index that measures fear and volatility in the markets, to an all-time high on Monday.  

“It was just truly shocking to watch that vote fail. Nobody could believe it actually happened,” said Sachs.

The argument for passing the $700 billion rescue package could be bolstered by another jump in the Libor rate, an indicator of banks' willingness to lend to each other.  Overnight Libor, which moves depending upon how badly banks need funds immediately, soared from 2.57% to 6.88%. 

Tuesday's markets should also be influenced by the end of the third quarter. Fund managers usually try to "window dress" -- Wall Street lingo for closing out positions -- before they have to report their quarterly gains or losses to shareholders.

Meanwhile, crude oil prices recovered somewhat from what was the sharpest one-day percentage decline since April 2003. In recent trading, crude was up $3.13 to $99.50 a barrel. Monday's $10 plunge in crude prices had less to do with a sudden change in the energy market than fears the failed rescue plan would hurt the economy and lower crude demand.

The rebound in oil prices helped lift energy stocks, which were biggest gainers on Tuesday. Marathon Oil (MRO) and Hess (HES) outpaced rivals with gains of about 7% a piece. 

Corporate Movers

Merrill Lynch (MER) traded higher after Singapore’s largest sovereign wealth fund, Temasek Holdings, raised its passive stake in the financial giant to 13.7% from 9.4%. The new investment, which was revealed in an SEC filing Tuesday morning, brings Temasek’s stake up to 219.7 million shares.

Sovereign Bancorp (SOV) reversed Monday's 72% plunge with a surge of 74% after The Wall Street Journal reported the embattled regional bank will replace CEO Joseph Campanelli with Paul Perrault. The Pennsylvania bank could vote on the matter as early as Tuesday. Also, Fox-Pitt upgraded Sovereign to an "outperform" rating from "in line." 

Genworth Financial (GNW) saw its shares jump 30% after it said it may spin off its U.S. mortgage insurance business. The company also sought to reassure shareholders about its liquidity situation, saying it has lowered its commercial paper borrowings, $800 million in cash or cash-like assets in its holding company and "substantial" credit facilities. 

Pepsi Bottling Group (PBG), the nation's largest bottler of the popular soft drink, posted an 11% drop in third-quarter earnings but beat the Street. The company earned $106 per share on a 2.3% rise in revenue to $3.81 billion. Analysts interviewed by Thomson Reuters expected PBG to earn $1.04 a share. 

Data Dump

The markets received more evidence of the housing slump’s impact on home values on Tuesday. The S&P Case-Shiller 10-city home price index plunged by a record 17.5% in July from a year ago. The index’s 20-city home price index fell by 16.3% over the past year, also a record.

Consumer confidence unexpectedly improved in September, according to the Conference Board, a private research group. The group's confidence index rose to 59.8 this month, well above the 55 reading that economists surveyed by Thomson Reuters expected. A month ago the index was at 56.9. 

The Chicago Purchasing Management index, which gauges manufacturing activity, fell to a reading of 56.7 in September, topping expectations for a 53 reading. Expansion is indicated by a score higher than 50. 

Global Markets

World markets were volatile throughout their trading sessions. Asian markets, which had fallen as much as 10% in some cases, recovered the bulk of their losses. In Europe, some of the indices moved into positive territory.

The Dow Jones Euro Stoxx 50 Index fell 14.12 points, or 0.47%, to 2994.07. In the U.K., the FTSE 100 gained 22.14 points, to 0.46%, to 4840.91. 

On the European continent, Germany's Dax fell 46.79 points, or 0.81%, to 5760.29 while France's CAC rose 3.53 points, or 0.09%, to 3957.01. 

In Asia, Tokyo's Nikkei Index dropped 483.75 points, or 4.12%, to 11259.86 - the index had been down as much as 10% in early Japanese trading. In Hong Kong, the Hang Seng gained 135.53, to 0.76%, to 18016.21. That index was down as much as 5% earlier.

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