November 5, 2008
Wall Street built on recent gains Tuesday as reduced volatility and easing in the credit markets helped give stocks their strongest Election Day rally in 24 years.
The Standard & Poor’s 500-stock index closed above 1,000 for the first time since Oct. 13, gaining 4 percent, and the technology-heavy Nasdaq had its sixth consecutive daily rise. At the close, the Dow Jones industrial average was up 3.2 percent, or 305.45 points, to 9,625.28. The broader S. & P. 500-stock index was up 39.45 points, to 1,005.75, and the Nasdaq was up 3 percent, to 1,780.12.
Crude oil settled at $70.44 a barrel, up $6.53 in New York trading on speculation that the world’s largest oil exporter, Saudi Arabia, had cut supplies to some buyers.
The euro rose about 3 cents Tuesday, to $1.29. The dollar lost ground to the yen, the pound and other currencies as well.
Historically, Wall Street has enjoyed a bounce in the fourth quarter after a presidential election as investors breathe a sigh of relief that the long election cycle, with its accompanying uncertainty, has ended. Some analysts said investors seemed to be trying to get a jump on the expected rally by buying on Election Day.
“We don’t know if it’s the end of the bear market yet, but it looks as though the bear has taken a nap,” said Sam Stovall, chief investment strategist at Standard & Poor’s equity research. “So investors are thinking, let’s enjoy a bit of a relief, both from the market’s lows and from the endless pre-election rhetoric.”
Other analysts said they believed the elections only had a peripheral effect on the market, as there had been no major surprises. More important to the rally, they said, were a continuing round of coordinated interest rate cuts worldwide, the continuing thaw in the credit markets and the increasing resiliency of the markets to the daily drumbeat of bad economic news. The extreme volatility of recent weeks has calmed, though trading volume remained light.
The Chicago Board Options Exchange’s volatility index — or VIX — dipped below 50 for the first time since Oct. 14. Wall Street has rallied 18.3 percent since the close on Oct. 27, including the 10.8 percent gain on Oct. 28.
“Investors are starting to look ahead of some of these numbers to 2009, and they are starting to see a bit of recovery,” said Ryan Larson, head equity trader at Voyageur Asset Management. “Some of the volatility is coming out of the marketplace.”
Underlying the market’s new-found stability, the stock markets showed little reaction as the government reported that new orders for manufactured goods in September dropped $11.2 billion, or 2.5 percent, to $432 billion, a larger-than-expected loss. This followed a 4.3 percent August decrease.
It was the second negative manufacturing report in two days. On Monday, the Institute for Supply Management’s index of manufacturing activity in the United States fell to 38.9 in October, from 43.5 in September, the worst reading since September 1982. The markets also seemed to take that news in stride, spending the day trading in a narrow range before eventually ending the day flat, indicating that much of the bad news had been already priced into stock prices.
The rally that unfolded on Wall Street was broad-based. All industry sectors in the S.& P. index rose, led by telecommunications and energy stocks. Among the 30 blue-chip stocks that make up the Dow, General Electric, Verizon Communications and Caterpillar were among the strongest performers.
The stock exchange first opened for trading on Election Day in 1984. That year, the Dow rose 1.2 percent, a gain not topped since, as Ronald Reagan was re-elected.
Shares in MasterCard, the world’s second-biggest credit card company after Visa, jumped 18 percent after the company said that higher overseas revenue had helped bolster profit.
Still, the company warned that the economic slowdown would affect profit in the near term.
Archer Daniels Midland, the world’s largest grain processor, was up 15 percent as earnings more than doubled on rising commodity prices.
Building on a trend from the last several days, the credit markets eased further on Tuesday, with interbank and corporate borrowing rates declining significantly. The London interbank offered rate, or Libor, a benchmark that banks charge one another, fell to 0.375 percent.
The Treasury’s 10-year bill rose 1- 17/32, to 102- 7/32, and the yield, which moves in the opposite direction from the price, was at 3.72 percent, down from 3.91 percent late Monday.
The rate corporations pay for short-term loans known as commercial paper, a part of the market that had seized up in recent weeks, making it hard for businesses to borrow, dropped to 2.88 percent for three-month loans, down from 3.31 percent on Monday. It was the lowest the rate has been since mid-September.
Last week, the Federal Reserve began lending directly to corporations through commercial paper. Those efforts and many others from central banks around the world appear to be helping restore a degree of normalcy to the debt market after weeks of tumult.
Still, in some important parts of the market, conditions remain far from normal. Yields on mortgage securities, which determine mortgage interest rates, remain at elevated levels though they have fallen somewhat in the last couple of days. Last week, the average interest rate on 30-year fixed-rate mortgages was 6.46 percent, up from 6.04 a week earlier, according to Freddie Mac.
Excluding transportation like aircraft and autos, demand for manufactured goods decreased 3.7 percent in September, the largest decrease since the start of record-keeping in 1992.
Still, the news remained in line with weeks of economic data indicating that the economy took a sharp downturn beginning in the third quarter as ripples from the subprime mortgage crisis began to constrain access to credit severely. Stock markets were also higher in Europe and Asia. The Dow Jones Euro Stoxx 50 index, a barometer of euro zone blue chips, rose 5.5 percent, while the FTSE 100 index in London rose 4.4 percent. The CAC 40 in Paris gained 4.6 percent, and the DAX in Frankfurt was up 5 percent.
In Tokyo, the Nikkei 225 stock average jumped 6.3 percent, as investors returned from a holiday Monday. The Hang Seng index in Hong Kong rose 0.3 percent.
In Sydney, the S.& P./ASX 200 index closed 0.2 percent lower, after the Australian central bank surprised the markets on Tuesday with a larger-than-expected interest rate cut. The bank cut its main interest rate target by three-quarters of a percentage point, to 5.25 percent, rather than by the half-point that had been widely expected.
“International economic data have continued to point to significant weakness in the major industrial economies, and there have been further signs that China and other parts of the developing world are slowing as well,” the Reserve Bank of Australia said in a statement.
Policy makers worldwide are racing to prop up banks, calm volatile stock markets and inject steam into their flagging economies by trying aggressively to reduce the cost of borrowing.
The Federal Reserve Board in Washington last week lowered its benchmark interest rate by half a percentage point, to 1 percent, its second big rate cut this month. The Bank of Japan last week cut its main rate target to 0.3 percent from 0.5 percent. The European Central Bank and the Bank of England are expected to cut rates on Thursday.
Following are the results of yesterday’s Treasury auction of 238-day cash management bills and four-week bills:
David Jolly, Bettina Wassener and Vikas Bajaj contributed reporting.
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