Stocks turned lower as soon as the opening bell rang Wednesday, and the weakness seemed justified when the Institute for Supply Management (ISM) non-manufacturing report was issued at 10 a.m. Eastern.
The index fell to 37.3% from 44.4% in October, the lowest level since the index began in 1997. And with that, the market first turned slightly lower but then rallied for 300 points. However, the session turned into another roller-coaster dropping almost to the morning’s lows by 2 p.m. Eastern, then rallying and setting a new high for the day, which was 400 points higher than the morning low.
The final rush to buy came as a result of a story in The Wall Street Journal that the U.S. Treasury was considering lowering mortgage rates and possibly issuing loans as low as 4.5%. This caused a rush to buy financial stocks; Citigroup (C) led the blue-chip gains, rising 8.3%. Bank of America (BAC) rose 7.1% and JP Morgan Chase (JPM) gained more than 6%.
Alcoa (AA) was the Dow’s biggest loser, down 4.8% after several mixed stories with one saying that a rumored merger with Chinese steel maker Chinalco might not be a good fit. Research In Motion (RIMM) hit a new low at $35.09 after it cut its Q3 forecast, but the stock rebounded and even closed up 4.4%.
But what really turned the market around was a report from the Mortgage Bankers Association which said its survey found that mortgage applications rose sharply last week, as borrowers rushed to lock in lower rates.
At the close, the Dow Jones Industrial Average (DJI) gained 173 points, closing at 8,592. The S&P 500 (SPX) rose 22 points to 871 and the Nasdaq (NASD) gained 43 points to close at 1,492.
The New York Stock Exchange traded 1.5 billion shares, with advancers ahead by 2-to-1. On the Nasdaq, 1 billion shares were exchanged and advancers were ahead by 8-to-5.
Crude oil for January delivery was down 17 cents to $46.79 a barrel, and the Amex Energy SPDR (XLE) rose 3 cents to $46.48.
The February gold contract was off $12.80 to $770.50 per troy ounce, and the PHLX Gold/Silver Index (XAU) closed at $90.47, off $4.44.
What the Markets Are Saying
Wednesday’s late rally that closed the Dow (DJI) and S&P 500 (SPX) slightly above their 20-day moving averages surprised the bears, especially in light of the horrible ISM numbers in the morning. It shook their confidence since it looked like a day in which the market acted favorably despite bad news — and usually that’s a bullish sign.
But before the bears pack it in and the bulls get to party, the bovines will have to penetrate the top of the Dow close at 8,829 and the S&P close at 897 made on Nov. 28. If they do it, the market will have reversed through a small inverse head-and-shoulders bottom with a target of at least Dow 9,625, the election-day high, and could even run to Dow 10,136 and S&P 1,040.
Yesterday does make one consider the alternatives to what seemed the day before as highly unlikely. But I always pause when bad news is ignored — this could mean that the worst news has been discounted and the market, for now, is ready to move away from its recent low.
It doesn’t mean that the bear market is over but it could be telling us that a sideways movement is underway. A strong end-of-week rally in the face of more bad news could get the bulls in a holiday-party mood.
Today’s Trading Landscape
Earnings to be reported include: American Software (AMSWA), Canadian Imperial Bank of Commerce (CM), Cascade Corp (CAE), Comtech Telecommunications (CMTL), Culp (CFI), Gerber Scientific (GRB) and Guess (GES).
Jackson Hewitt Tax Service (JTX), Kewaunee Scientific (KEQU), Layne Christensen (LAYN), Liquidity Services (LQDT), Magma Design Automation (LAVA), ModusLink Global Solutions (MLNK) and Movado (MOV).
Novell (NOVL), Quanex (NX), Sanderson Farms (SAFM), Sirona Dental Systems (SIRO), Smithfield Foods (SFD), Toll Brothers (TOLL), Ulta Salon (ULTA), Cosmetics & Fragrance (ULTA), UTi Worldwide (UTIW), Versant (VSNT), Williams-Sonoma (WSM) and Wind River Systems (WIND).
In terms of economic reports, today we expect the initial jobless claims for the week of Nov. 29 (the consensus expects an increase of 21,000) and the DJ-BTMU Business Barometer for Oct. 20.
The Bank of England cut its benchmark interest rate by 1% to a rate of 2%; the European Central Bank cut its key interest rate 75bp to 2.50%.
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