It started with another stomach-turning drop at the open, with the Dow Jones Industrial Average tumbling 326 points by midday. Then the Dow changed course and raced higher to close up nearly 300 points, the biggest gain in two months.
This wasn’t just volatility. This was Wall Street whiplash.
The Dow climbed 632 points from its low of the day to its high, marking its biggest swing since July 2002.
“The volatility will continue,” said Dan Genter of RNC Genter Capital Management. “People are trying to digest that we’re in an earnings recession, but they’re also realizing it’s not the end of the world and we’re probably going to come out of this.”
Sentiment turned around on speculation that lower borrowing costs and a plan to bail out bond insurers will restore confidence in the financial system.
Gains by Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp., the largest U.S. banks, helped the Dow Jones Industrial Average rise 298.98 points, or 2.5 percent, and sparked the biggest advance in financial shares in five years.
Shares of Centex Corp. and D.R. Horton Inc. led a gauge of home builders to its steepest gain since at least 1994 on expectations the Federal Reserve’s surprise 0.75 percentage point rate cut Tuesday will spur construction.
Shares of Ambac Financial and MBIA, the two largest U.S. bond insurers, posted the biggest gains in the S&P 500 after New York state regulators met with banks to discuss raising new capital for the insurers. New capital could help preserve the top credit ratings for the bond guarantors and boost confidence in the $2 trillion of assets they guarantee.
Ambac shares rallied $5.73, or 72 percent, to $13.70. MBIA shares increased $4.08, or 33 percent, to $16.61.
JPMorgan shares jumped $4.86, or 12 percent, to $45.72, their steepest gain since 2002. Bank of America shares added $3.18, or 8.5 percent, to $40.57, their biggest rally in eight years. Citigroup shares advanced the most since October 2002, climbing $1.96 to $26.36. Bear Stearns Cos. recommended that investors buy shares of large banks, which historically have outperformed during periods of aggressive Fed rate cuts.
The Fed’s latest rate cut “is delivering free money to banks,” said Wayne Wilbanks of Wilbanks Smith & Thomas Asset Management in Norfolk. “If you look at any of these financials, they are blown-out-of-the-water oversold.”
Broader stock indicators also surged yesterday. The Standard & Poor’s 500 Index rose 28.10, or 2.14 percent, to 1,338.60, while the Nasdaq Composite Index rose 24.14, or 1.05 percent, to 2,316.41.
The Dow finished the day up 298.98 at 12,270.17.
“Volatility is certainly the norm now and not the exception,” said Art Hogan, chief market strategist at Jefferies & Co.
He noted that the Dow had triple-digit swings — three of them 300 points — in all but two trading days this year.
Before yesterday’s session, the Dow had fallen nearly 10 percent since the start of the year, and it was down more than 15 percent since its record close of 14,164.53 on Oct. 9.
At its lowest point Tuesday, the Dow was 17.9 percent below its October closing high, meaning that the stock market has come perilously close to the 20 percent threshold that defines a bear market.
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