Major indexes surged in late trading after numerous swings into positive and negative territory Wednesday. Volatility rules the day
Maybe neck braces should be standard equipment for equity investors in the current market. In yet another volatile session, major stock indexes finished sharply higher Wednesday due to a late-session short-covering surge. After deepening losses and failed rally attempts during the day, the stock market jumped abruptly in the final 30 minutes of trading, driven by a spike in volume.
However, broader markets were weak as worries about subprime home loan defaults and weakness in credit markets weighed on sentiment. On the NYSE, 19 issues were lower in price for each 14 that were higher, while breadth on the Nasdaq was 18-12 negative.
On Wednesday, the Dow Jones industrial average gained 150.38 points, or 1.14%, to 13,362.37. The broader S&P 500 index climbed 10.54 points, or 0.72%, to 1,465.81. The tech-heavy Nasdaq Composite index declined 7.6 points, or 0.3%, to 2,553.87.
Indexes had bounced on either side of the unchanged line through much of the session. On the one hand, ongoing worries about subprime home loan defaults and weakness of credit markets appeared to weigh on investor sentiment for much of the session, exacerbated by reports that two Bear Stearns (BSC) hedge funds filed for bankruptcy, with a third hedge fund in trouble. But the desire to snap up bargains after the recent market rout may have proved too hard to resist.
S&P technical analyst Chris Burba notes that NYSE volume was 36% above its 20-day average on Wednesday and Nasdaq volume was 30% higher.
Volatility, as measured by the CBOE volatility index, or VIX, remains elevated, with the index closing Wednesday at 23.67, just shy of its 52-week high of 23.71. The VIX is widely regarded as a "fear gauge" for U.S. stocks.
Homebuilding stocks were lower Wednesday, with the S&P industry index down 2.6% after shares of Beazer Homes (BZH) tumbled nearly 18% on market rumors that the company was set to file for bankruptcy. Beazer denied the rumors, calling them "scurrilous and unfounded".
Financial issues were among the session's worst performers. S&P's industry index for investment banking and brokerage companies was down nearly 2.3% after a Wall Street Journal that Bear Stearns has prevented investors from taking their money from a hedge fund that put some $900 million in mortgage investments.
Global equity markets were also jolted Wednesday by reports that two of Australia's Macquarie Bank funds may post losses. French investment manager Oddo Asset Management said it is closing three funds totaling $1.3 billion. The news added to investors' concerns about subprime problems spreading to other parts of the economy.
Economic data released Wednesday were mixed. Weekly mortgage applications continued to slide, with Market Composite Index down 0.3% to 607.1 on a seasonally adjusted basis for the week ended July 27 from 609.0 one week earlier. On an unadjusted basis, the index fell 0.4% from the prior week but was 14.2% higher than a year ago. The seasonally adjusted Purchase Index fell 1.8% to 416.6 from 424.2 the previous week, while the Refinance Index rose 1.8% to 1724.1 from 1692.9 a week earlier.
The ADP National Employment Report showed that nonfarm private employment grew 48,000 from June to July on a seasonally adjusted basis, significantly lower than a 150,000 increase reported in June. The latest figure suggests employment is decelerating and may bode poorly the official government employment data due out on Friday.
The Institute for Supply Management's factory activity report was weaker than expected at 53.8 in July, vs. a forecast of 55, and down from 56 in June.
Reports from auto manufacturers on U.S. sales for July began to surface Wednesday. Ford Motor Co.'s (F) sales fell a greater than expected 19.1% to 195,245 cars and trucks in July as the auto maker slashed its rental car sales in half. Chrysler (DCX) sales dropped 8% to 137,728 vehicles, as high gas prices and a slump in the housing market produced bleak overall results for the auto industry. Sales slumps were also reported by General Motors (GM), whose July U.S. light-vehicle sales fell
22.3% to 315,870, and by Toyota Motor (TM).
The energy markets saw another wild session Wednesday. September West Texas Intermediate crude oil futures which surged to a high of $78.70 high earlier in the session, plunged $1.68 to $76.53 per barrel. Prices retreated after a Department of Energy report said that crude oil stocks fell by a more than expected 6.5 million barrels, leaving them well above the upper end of the average range for this time of year.
Among stocks in the news Wednesday, MetLife Inc. (MET) reported $1.72 in second-0quarter profit, up from $1.28 a year ago, on a 7.3% increase in premiums. The insurance and financial services company boosted its 2007 earnings outlook to $5.65 to $5.80 from $5.05 to $5.30 a share.
Shares of MasterCard (MA) fell sharply Wednesday after the credit-card company posted second quarter earnings per share of $1.85, vs. a loss of $2.30 one year earlier that included special items, on an 18% revenue rise. S&P says the decline may have reflected the stocks recent climb and worries about consumer credit and spending.
Dow Jones & Co. (DJ) announced a definitive agreement to be acquired by News Corp. (NWS) for $5.6 billion. The deal includes an editorial agreement to assure independence and journalistic integrity for Dow Jones' publications and services, and allows for some shareholders to obtain an equity stake in a new News Corp. subsidiary.
Earnings results from two restaurant chains specializing in spicy foods received different receptions on Wall Street Wednesday. Shares of Buffalo Wild Wings (BWLD) fell sharply after the company reported higher earnings and sales that nonetheless appeared to come in below market expectations. But Chipotle (CMG) shares soared after the company posted sharp gains in sales and profits and lifted its forecasts for 2007.
Jones Apparel Group (JNY) swung to a net loss of 44 cents a share from a 32-cent profit a year ago on a 2.2% decline in revenue amid a weakening retail environment. Excluding results from discontinued operations, the impact of severance and other costs, the company earned 17 cents a share, vs. 39 cents in the second quarter of 2006. Jones lowered its full-year profit target to $1.28 to $1.34 a share. Separately, it decided a revised bid from Fast Retailing to buy its Barneys N.Y. unit is a superior offer.
European stock markets were sharply lower on Wednesday. In London, the FTSE 100 index fell 1.72% to 6,250.60. Germany's DAX index was down 1.45% to 7,473.93. In Paris, the CAC 40 index dropped 1.68% to 5,654.30.
Asian markets were also pummeled on Wednesday. In Japan, the Nikkei index dropped 2.19% to 16.870.98. In Hong Kong, the Hang Seng index slid 3.15% to 22,455.36. In China, the Shanghai Composite index was off 3.81% to 4,300.56.
Treasury prices fell slightly Wednesday despite ongoing concerns over deterioration in the the subprime mortgage business that sent stocks to still lower levels, and weak July ISM. The 10-year note fell 04/32 to 98-03/32 for a yield of 4.74%. The 30-year bond eased 03/32 to 94-23/32 for a yield of 4.89%.