Stocks soar, thanks to China, but weak trading volume raises a flag
Finally -- the big bounce!
Stocks soared worldwide Thursday in a rally that many bulls and bears alike agreed was long overdue after the heavy selling of the last few weeks.
The Dow Jones industrials rocketed 284.54 points, or 2.8%, to 10,258.99. Most broader market indexes were up between 3% and 4%, as were many European markets. It was the best day for the bulls since May 10.
In the parlance of the trader, the market had become drastically oversold amid rising fears that Europe’s debt crisis would go global.
But even the angriest bears know that prices don’t go straight down forever. Stocks just needed a decent excuse to stage a hefty rebound.
China to the rescue: One day after the Financial Times reported that China was reviewing its holdings of euro-zone countries’ bonds, the Chinese State Administration of Foreign Exchange, which manages the nation’s $2.4-trillion in foreign reserves, issued a statement of support for Europe.
“The European market has been, is now and will continue to be one of the main investment markets for the foreign exchange reserves,” the statement said.
But as Alan Ruskin, head of currency strategy at RBS Securities, put it in a note to clients: “What can you expect them to say? . . . If China holds over half a trillion in euro assets do not expect them to talk down the value of these assets.”
In any case, the bulls took the news and ran with it, and the bears retreated. The Chinese saved the euro from hitting a new four-year low: The currency rose to $1.236 from $1.220 on Wednesday.
It also helped the markets’ mood that the Spanish parliament passed a major package of spending cuts to pare the country’s budget deficit -- though the measure barely made it, with 169 lawmakers in favor and 168 opposed.
At the closing bell on Wall Street, traders were focused on the obvious question: Was this just another one-day respite in a continuing downtrend? Before this session’s rebound the Dow had closed higher on just five days since April 30. Each rally was followed by another sell-off.
One concern: New York Stock Exchange composite trading volume on Thursday was 6.02 billion shares, relatively weak compared with most days this month -- particularly the biggest sell-off days. Volume signals conviction, and by that measure the bulls didn’t put on a show of force Thursday.
-- Tom Petruno
Photo: A euro coin. Credit: Federico Gambarini / EPA