Demand for risky debt helps fuel market surge
NEW YORK » Stocks surged yesterday as solid results in the technology arena and renewed demand for risky debt soothed investors a day after the Federal Reserve said the economy should keep expanding.
However, a late-day plunge and recovery revealed investors' underlying unease over how problems in lending might hurt corporate America, despite the Fed's assurances.
The Dow Jones industrial average initially soared more than 190 points, then dropped into negative territory in the last hour of trading, reportedly on speculation that investment bank Goldman Sachs Group Inc. would release some negative news. When Goldman Sachs dispelled the rumor, the Dow rebounded to finish up more than 150 points.
John O'Donoghue, co-head of equities at Cowen & Co., said he doubts that all the possible problems involving risky lending are resolved in investors' minds. "We'll have to see how the dust settles here in the next few days ... I don't think the market has made up its mind what it wants to do," he said.
Wall Street was pleased to hear that computer network equipment maker Cisco Systems Inc. posted a 25 percent jump in quarterly profit and raised its revenue forecast for the year. The upbeat technology news, along with strong recoveries in the beleaguered financial and homebuilding sectors, came a day after the Federal Reserve suggested that the lending environment isn't difficult enough to trip up the economy.
The Dow rose 153.56, or 1.14 percent, to 13,657.86.
The Standard & Poor's 500 index rose 20.78, or 1.41 percent, to 1,497.49. The S&P has had its biggest three-day point gain since October 2002.
Both the technology-dominated Nasdaq composite index and the Russell 2000 index of smaller companies posted their largest one-day point gains since June 29, 2006.
The Nasdaq added 51.38, or 2.01 percent, to 2,612.98.
The Russell 2000 index gained 21.53, or 2.78 percent, to 795.66. The index had dipped in late July into negative territory for the year, battered as credit crunch worries led investors to turn to larger, more established companies. Now, the Russell is back in positive terrain for the year.
"People are getting some appetite for risk again," said John C. Forelli, portfolio manager for Independence Investment LLC in Boston.
Advancing issues outnumbered decliners by about 8 to 3 on the New York Stock Exchange, where volume came to 2.60 billion shares, up from 2.14 billion shares traded Tuesday.
Crude oil prices fell 27 cents to $72.15 a barrel.
Bonds plummeted as stocks rose, with the yield on the 10-year Treasury note spiking to 4.89 percent from 4.77 percent on Tuesday. Investors exited government securities after the Fed's statement dashed hopes of a rate cut, and on rumors that Asian governments would get rid of some of their U.S. assets.
The financial sector -- a big loser in recent weeks -- saw large gains yesterday.
Bears Stearns Cos., whose collapsing hedge funds have been a prime cause of jitters in the market, rose 3.6 percent. Lehman Brothers rose 6.7 percent, JPMorgan Chase & Co. rose 2.6 percent, and American Express Co. rose 4.2 percent.