Wall Street posts best day in a month as bears retreat a bit

Falling oil prices, a rallying dollar, a hint of more financial support for banks and brokerages from the Federal Reserve -- that combo was enough today to stir a little fear in the stomachs of Wall Street’s bears.

Stocks surged in the final two hours of trading, lifting broad market indexes to their best gains in at least a month. The rally had the scent of "short covering" -- buying by traders who were closing out previous bearish bets.

The Standard & Poor’s 500 index jumped 1.7% to 1,273.70, its biggest advance since it rose nearly 2% on June 5. The Nasdaq composite gained 2.3% to 2,294.44, its best day since May 1.

The 30-stock Dow index continued its laggard ways, adding 152.25 points, or 1.4%, to 11,384.21.

Crude oil slid for a second day, and the difference today was that investors seemed to believe the turnabout might have some legs. Crude futures in New York were off $5.33, or 3.8%, to $136.04 a barrel, pushed down in part by a rebound in the dollar (a stronger greenback can lure traders away from commodities).

The dollar, in turn, got a boost from Fed Chairman Ben S. Bernanke’s wide-ranging speech this morning, in which he laid out the central bank’s plan for strengthening financial-industry regulation.

More pertinent for markets at the moment, Bernanke also said the Fed was looking at extending its emergency lending program to major securities firms into 2009, if needed. The program was put in place in mid-March after the collapse of brokerage Bear Stearns Cos., to give securities firms a borrowing option if their peers on Wall Street cut them off.

The Fed had intended to end the special lending program in mid-September. But this obviously isn’t a "mission accomplished" situation for Bernanke & Co. quite yet.

Not surprisingly, battered financial stocks led today’s rebound after their latest trouncing on Monday. An index of 89 financial issues in the S&P 500 jumped 5.7%, the largest one-day rally since April 1.

Financial issues have been heavily shorted by Wall Street’s bears. In a short sale a trader borrows stock and sells it, expecting to repay the loan later with new shares bought at a lower price.

With financial stocks down drastically in the last month -- and with the news a little less grim for at least a day -- it made sense for some shorts to close out their trades by buying back the stocks, said Joe Saluzzi, a principal at Themis Trading in Chatham, N.J.

"This felt like a short-covering rally," he said, noting how the buying became more pronounced toward the closing bell, as the market failed to reverse.

Mortgage giant Fannie Mae, which had plummeted 16.2% on Monday, jumped $1.88, or 11.9%, to $17.62 today.

Among other financial issues, Bank of America surged $2.01, or 9.3%, to $23.54. Lehman Bros. rose $1.43, or 6.9%, to $22.27.

Comments

[lordjeff]

Nice piece. Looks like hope may be returning to the market. The dollar is showing positive life and crude may finally be starting its much anticipated fall. I stumbled across this article today about what Bernanke's comments may imply for interest rates and how the dollar will impact this.
http://www.greenfaucet.com/the-market/is-bernanke-trying-to-tell-us-something-about-interest-rates

thanks for the info