Nov 3, 2009
AFTER months on hiatus, volatility is back on Wall Street.
Stocks ended higher yesterday after another day of big swings. Stronger reports on manufacturing and housing gave the market an early boost but a rise in the dollar and worries about the soundness of an eight-month rally chipped away at the gains. A late surge left the Dow Jones industrial average with a gain of 77 points but still down by about half from its best levels of the day.
After nearly unbreakable gains since midsummer, trading has become much rockier in recent weeks as investors worry that the pace of the economic recovery they have been counting on will be hard to maintain.
Jittery traders have pushed the market around in ways more reminiscent of the huge swings of a year ago than the smoother advance stocks have seen since the early spring. The Dow has gained or lost more than 100 points in six out of the last seven days. The last time the Dow has as long a streak of triple-digit moves was in late March, shortly after major stock indexes bounced off 12-year lows.
Good news can still lift the market, but those gains are now less likely to hold than they were earlier in the year. The market jumped last Thursday after the government reported the economy grew at a 3.5 percent pace in the July-September quarter, well ahead of expectations.
But that enthusiasm faded quickly as many noted that much of the growth came from government spending programs which are winding down. Likewise, many companies are reporting stronger than expected earnings, but in many cases the gains came from cost-cutting instead of higher sales. On Friday the Dow slumped nearly 250 points as those worries deepened, more than erasing the 200-point gain from the day before.
Analysts say many investors still expect the economy to improve but are worried it won't happen as quickly as they had hoped. The signs of investor anxiety are clear. The Chicago Board Options Exchange's Volatility Index, known as Wall Street's fear gauge, crept up to 31.84 yesterday - a fresh four-month high before ending at 29.78.
"It's a flip of a coin right now," said Jeffrey Frankel, president of Stuart Frankel & Co. "You never know what you're going to get the next day when you come in to work."
As the market heads into the final months of the year, investors are trying to determine whether the bets they've been placing on a rebound in the economy over the past several months have been overdone. Even with a 2 percent loss in the Standard & Poor's 500 in October, the index is still up 54.2 percent from a 12-year low in March.
"The question is, is the trend changing?" said Jim Dunigan, managing executive of investments at PNC Wealth Management.
Trading is likely to be volatile throughout the week as investors sift through a flood of economic data, including the government's monthly employment report on Friday, that will offer a glimpse at the fourth quarter. The Federal Reserve will also weigh in on the economy after a two-day policy meeting on Wednesday.
On yesterday, the Dow rose 76.71, or 0.8 percent, to 9,789.44, its fourth gain in 10 days. The broader Standard & Poor's 500 index rose 6.69, or 0.7 percent, to 1,042.88, and the Nasdaq composite index rose 4.09, or 0.2 percent, to 2,049.20.
The seesaw trade came after the Institute for Supply Management said manufacturing activity grew in October at the fastest pace since April 2006 and much better than expected. Meanwhile, the National Association of Realtors said pending home sales increased for the eighth straight month in September, also topping expectations.
Separately, the Commerce Department said construction spending increased 0.8 percent in September, matching the gain in August. Economists had been expecting a drop.
Stocks ended higher yesterday after another day of big swings. Stronger reports on manufacturing and housing gave the market an early boost but a rise in the dollar and worries about the soundness of an eight-month rally chipped away at the gains. A late surge left the Dow Jones industrial average with a gain of 77 points but still down by about half from its best levels of the day.
After nearly unbreakable gains since midsummer, trading has become much rockier in recent weeks as investors worry that the pace of the economic recovery they have been counting on will be hard to maintain.
Jittery traders have pushed the market around in ways more reminiscent of the huge swings of a year ago than the smoother advance stocks have seen since the early spring. The Dow has gained or lost more than 100 points in six out of the last seven days. The last time the Dow has as long a streak of triple-digit moves was in late March, shortly after major stock indexes bounced off 12-year lows.
Good news can still lift the market, but those gains are now less likely to hold than they were earlier in the year. The market jumped last Thursday after the government reported the economy grew at a 3.5 percent pace in the July-September quarter, well ahead of expectations.
But that enthusiasm faded quickly as many noted that much of the growth came from government spending programs which are winding down. Likewise, many companies are reporting stronger than expected earnings, but in many cases the gains came from cost-cutting instead of higher sales. On Friday the Dow slumped nearly 250 points as those worries deepened, more than erasing the 200-point gain from the day before.
Analysts say many investors still expect the economy to improve but are worried it won't happen as quickly as they had hoped. The signs of investor anxiety are clear. The Chicago Board Options Exchange's Volatility Index, known as Wall Street's fear gauge, crept up to 31.84 yesterday - a fresh four-month high before ending at 29.78.
"It's a flip of a coin right now," said Jeffrey Frankel, president of Stuart Frankel & Co. "You never know what you're going to get the next day when you come in to work."
As the market heads into the final months of the year, investors are trying to determine whether the bets they've been placing on a rebound in the economy over the past several months have been overdone. Even with a 2 percent loss in the Standard & Poor's 500 in October, the index is still up 54.2 percent from a 12-year low in March.
"The question is, is the trend changing?" said Jim Dunigan, managing executive of investments at PNC Wealth Management.
Trading is likely to be volatile throughout the week as investors sift through a flood of economic data, including the government's monthly employment report on Friday, that will offer a glimpse at the fourth quarter. The Federal Reserve will also weigh in on the economy after a two-day policy meeting on Wednesday.
On yesterday, the Dow rose 76.71, or 0.8 percent, to 9,789.44, its fourth gain in 10 days. The broader Standard & Poor's 500 index rose 6.69, or 0.7 percent, to 1,042.88, and the Nasdaq composite index rose 4.09, or 0.2 percent, to 2,049.20.
The seesaw trade came after the Institute for Supply Management said manufacturing activity grew in October at the fastest pace since April 2006 and much better than expected. Meanwhile, the National Association of Realtors said pending home sales increased for the eighth straight month in September, also topping expectations.
Separately, the Commerce Department said construction spending increased 0.8 percent in September, matching the gain in August. Economists had been expecting a drop.