Wall Street Wages Strong Comeback Bid; Dow Soars 272


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Wall Street made an abrupt change of course on Monday, posting a powerful rally after a deep retreat last week as traders raced back into beaten down equity markets.

Today's Markets

The Dow Jones Industrial Average soared 272 points, or 2.5%, to 11,044, the S&P 500 gained 26.5 points, or 2.3%, to 1,163 and the Nasdaq Composite rose 33.5 points, or 1.4%, to 2,517. The FOX 50 jumped 18.4 points to 849.

Trading was very choppy on Monday, with the Dow posting triple-digit gains, but the Nasdaq flipping between positive and negative territory for most of the day.  The blue chips were led higher by a broad swatch of issues, including IBM (NYSE:IBM), Caterpillar (NYSE:CAT) and United Technologies (NYSE:UTX).

Apple (NASDAQ:AAPL) was a drag on the Nasdaq after analysts at JPMorgan Chase noted the world's largest technology company is slashing parts orders for its super-popular iPad by 25% for the fourth quarter.  The move is not forecast to be in preparation of a new model, the report noted. Boeing, meanwhile, signed a final contract to provide the first long-awaited Boeing 787 Dreamliner.

From a broad level, financials and energy shares performed the best on the day, while utilities and technology companies lagged behind the broader markets.

Monday's trade was a stark contrast from last week, when the Dow plunged 738 points or 6.4% in the worst selling frenzy since the 2008 financial crisis.

'Bargain Hunting'

Indeed, despite the strong performance on the day, many market participants remained cautious about calling a bottom in the highly-volatile markets.

"The lack of volume suggests that institutions are unimpressed with valuations – even at these levels," Peter Kenny, managing director at Knight Capital Group, wrote in an e-mail, noting many traders may be "bargain hunting" after the intense selling last week.

The economic calendar is fairly light on Monday, with a report on new home sales being the only major release.  Sales of new homes fell 2.3% in August from July to an annualized unit rate of 295,000, according to the Commerce Department, which was in line with expectations.  This represents the fourth-straight monthly decline.  The level of new homes on the market hit a record low, which, could potentially help provide a bottom to prices. However, even with inventory levels being low, some analysts forecast continued sluggishness in homebuilding.

"Even with very low levels of inventory, the soft pace of sales continues to keep inventory elevated in terms of months' supply, restricting the need for new home building," economists at Barclays Capital said in a research note.

The new home industry has been under continued pressure as a result of weak lending conditions, high supply, and generally depressed prices across the country.

The Federal Reserve has tried to take measures to stimulate the economy, particularly the very weak housing sector.  For example, the central bank plans on holding short-term interest rates at historically low levels until 2013, and just unveiled a new plan to lengthen the maturity of its balance sheet. However, many analysts remain skeptical that those measures are going to work.

"All the liquidity in the world will not help if there is no demand," Kenny wrote, adding that demand is unlikely to come back until individuals and businesses expect the economy to recover.

Euro Debt Optimism 

European Central Bank Governing Council member Ewald Nowotny suggested Monday that a rate cut by the region's central bank shouldn't be ruled out, according to a report by Reuters.  The generally inflation-hawkish ECB halted its rate cuts at its September meeting only five months after starting to hike rate amid increasing economic headwinds.

There were also reports over the weekend regarding additional measures to make it easier to euro zone countries like Greece to access funding, which has been struggling with a nearly $500 billion public debt load and has received enormous bailouts from the European Union and International Monetary Fund.  The country, analysts say, is likely to default on its debt if it doesn't receive the next round of rescue aid next month.  The increased likelihood of a default has made it more expensive for other highly-indebted euro zone countries like Italy, Spain and Portugal to access funding in the private markets, sparking fears of the debt crisis could escalate significantly should Greece default.

In particular, policymakers are said to be in discussions about strengthening the so-called European Financial Stability Facility, which was set up in 2010 to help ease the pressures of the debt crisis.

'Dysfunctional Policy Performances'

Still, many market participants remained wary of policymakers' ability, or inclination, to further enhance the size of rescue funds.

"Euro area politicians and policymakers are still behind the curve in tackling the debt problems comprehensively enough to successfully contain or even reverse contagion," analysts at Barclays Capital wrote in a note to clients. "This overall policy uncertainty is not only not helpful, it is also damaging market confidence."

In fact, economists at Deutsche Bank blamed "dysfunctional policy performances" in the U.S. and Europe as main contributors to damaging the U.S. economy, particularly, in hurting Americans' wealth and confidence.  The German-based investment bank also warned that if "policy uncertainty intensifies further ... a recession could still ensue."

In currencies, the euro fell 0.19% against the U.S. dollar in very volatile trading, while the greenback slumped 0.1% against a basket of world currencies.

Energy markets were in the green.  Light, sweet crude gained 39 cents, or 0.49%, to $80.24 a barrel.  Wholesale RBOB gasoline rose 1 cent, or 0.58%, to $2.57 a gallon.

Gold tumbled $45.00, or 2.7%, to $1,595 a troy ounce.  The yield on the 10-year Treasury rose to 1.905% from 1.839%.

Corporate News

Netflix (NASDAQ:NFLX) struck a deal with Dreamworks Animation (NASDAQ:DWA) to stream first-run movies and television specials from the studio behind "Shrek" and "Madagascar." Shares were sharply higher on the news.

Berkshire Hathaway unveiled plans to buy back class A and B shares at no more than a 10% premium, sending shares soaring.

McGraw-Hill (NYSE:MHP) warned shareholders that the Securities and Exchange Commission is considering punishing the company’s Standard & Poor’s unit due to its handling of a 2007 security that imploded.

Foreign Markets 

The English FTSE 100 climbed 0.45% to 5,089 and the German DAX soared 2.9% to 5,346.

In Asia, the Japanese Nikkei 225 slumped 2.2% to 8,374 and the Chinese Hang Seng dropped 1.5% to 17,408.