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Turnaround Tuesday: Stocks Shed Losses, Zoom Higher

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After spending much of the session deep in the red, Wall Street made a dramatic turnaround, lurching into the green in the last half hour of trading in a stark contrast from the big selloffs in the prior two sessions. 

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The Dow Jones Industrial Average jumped 153 points, or 1.4%, to 10,809, the S&P 500 climbed 24.7 points, or 2.3%, to 1,124 and the Nasdaq Composite gained 69 points, or 3%, to 2,405. 

The blue chips had been down more than 240 points at numerous times during the trading day and the S&P 500 repeatedly slid into bear-market territory. However, Wall Street's late-day turnaround was swift and broad. 

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Financials, which had been one of the worst-performing sectors, suddenly zipped higher.  Indeed, Bank of America (BAC), which was sharply lower, managed to close in the green.  Utility stocks, which also struggled, significantly pared losses. 

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All in all, 26 of 30 Dow components ended in the green, with JPMorgan Chase (JPM) leading the way, and pharmaceutical giant Merck (MRK) struggling the most. 

'Spurred by a Headline'

Europe's sovereign debt crisis has been a major focus.  Initially, news that European officials are considering re-crafting Greece's bailout package spooked traders across the globe, sparking a steep global selloff, but then a report from the Financial Times suggesting finance ministers in the euro zone were going to take steps to ease the Greek crisis helped ignite the late-session rally, according to market participants.

"Positive European headlines have been few and far between and ultimately, today’s rally was spurred by a headline," Dan Greenhaus, chief global strategist at BTIG wrote in a note to clients. 

Still, the turmoil across the Atlantic prompted Goldman Sachs to slash its global economic outlook, and forecast the European economy to fall into recession by the fourth quarter.  A recession in Europe, analysts at the investment bank anticipate, will push the U.S. economy to the brink. 

"The European crisis threatens US economic growth via tighter financial conditions, reduced credit availability, and weaker growth of US exports to the region," the economists wrote in a not to clients. "This impact is likely to slow the US economy to the edge of recession by early 2012."

On the economic front, Federal Reserve Chairman Ben Bernanke told a joint session of Congress that the central bank sees continued weakness in the economy.  Bernanke noted that manufacturing has been heating up as exports have increased, but consumer confidence remains depressed because of a stubbornly anemic labor market. 

Additionally, the Fed chief noted that monetary policy alone can't solve the country's economic challenge, and called on policymakers across the spectrum to step in: "Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector," he said in prepared remarks. 

Factory orders declined 0.2% in August, worse than expectations of no change.  Excluding the transportation segment, orders were also down 0.2% -- the first fall in six months.

Treasury yields have plummeted close to historical lows as a result of turbulent equity and commodity markets and the Federal Reserve's pledge to extend the maturity of its balance sheet.  However, yields climbed Tuesday: the benchmark 10-year note yielded 1.831% from 1.761%. 

The euro bounced back 1.2% against the U.S. dollar after plunging more than 1% in the prior session.  The greenback fell 0.51% against a basket of world currencies. 

Energy markets were mixed on the day, but oil ended at the lowest level since September 2010. Light, sweet crude fell $1.94, or 2.5%, to $75.67 a barrel.  Wholesale RBOB gasoline rose a penny to $2.63 a gallon. 

Gold plunged $41.70, or 2.5%, to $1,616 a troy ounce. 

Corporate News

Ford (F) reached a tentative agreement on a new contract with the United Auto Workers union. 

UBS (UBS) says it will still report a third-quarter profit despite the $2.3 billion trading loss revealed last month. 

Foreign Markets

The Euro Stoxx 50 fell 1.8% to 2,099, the English FTSE 100 dipped 2.4% to 4,954, and the German DAX plunged 2.7% to 5,231. 

In Asia, the Japanese Nikkei 225 fell 1.1% to 8,456 and the Chinese Hang Seng plummeted 3.4% to 16,250. 

 

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