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 ( 2 Next Page