Stocks were off to a hot start at the beginning of the new quarter, as all the major averages posted impressive gains. The Dow shot up 391.47 points, closing at 12,654.36, buoyed by better economic news and the absence of bad news, as investors responded with broad buying of shares. The Nasdaq ended up 83.65, an increase of 3.67% at 2,362.75, while the S & P 500 came in at 1.370.18, with a gain of 47.88. A stronger dollar, which showed strength against possible inflation, as well as falling oil and gold prices, gave Wall Street a banner day.
The economic and manufacturing news kicked off the rally, as the ISM index for March came in at 48.6, up from 48.3 in February. And while a reading of under 50 in this index (which measures manufacturing activity) is considered subpar, economists had expected the latest reading to be 47.5, which would have indicated a continuing decline in manufacturing activity. Instead, the Institute of Supply Management’s data gave indications of a slight but healthy rise in manufacturing activity, something Wall Street certainly cheered.
Oil fell slightly, 0.60, to $100.98 per barrel, so investors who had switched heavily from stocks over to commodities the last couple of months, may be beginning a cautious return to equities. Gold futures for April on the Comex exchange were down $3.30 to $882.90 an ounce. This, in conjunction with oil prices, all helped reinforce the small but positive move in the dollar, which signaled a better groundwork for equities.
On the equity front, financials led the rally, which later spread broadly to every sector. With the news that UBS (NYSE: UBS) would seek a $15 billion cash infusion and announced a $19 billion writedown, something Wall Street has been waiting finally to hear, the market stormed ahead. The hope on the Street is that these writedowns will be cleared away, so the rally was the response, at least for the day, on the buy side of equities. Citigroup (NYSE: C) was up, as were Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC) and most of the financials. Thornburg Mortgage (NYSE: TMA), long a problem weighing on the markets, raised $1.35 billion in capital, and its stock surged to 1.45, up from 1.21.
After a first quarter filled with continuing news of serial writedowns, often successively after previous assurances that each writedown was the last, many investors are gauging that we might be finally seeing the beginning of the end of this process. Even at that, the tumultuous first quarter, in both the markets and the economy, has left scarred and weary investors in its wake. Investors have been hoping for better things, and with some of the data today, on the Street is seeing some concrete evidence for this hope.
There are things to keep watching. The volume wasn’t great on this rally, only 295 million shares traded on the NYSE, with just over two billion on the Nasdaq. Historically, classic trading patterns tell of rallies needing confirmation via heavy volume. And there were a lot of positions unwound during the previous quarter, so whether or not this is new buying with any staying power, will be the question for the weeks ahead. Also, with the opening of a new quarter, we will begin to get pre-announcements on earnings and some reports, so what investors will be looking for will be at the very least less bad news.
Still, there are indicators that the lengthy clawing and crawling back to a better, healthier economy and more robust equity markets may have begun in earnest. The credit crisis has at least been addressed in some fashion by the Fed, the financials and investors. No one believes it will be worked through overnight, but there are signs that the freefall may be over and re-building can begin. Also, tech stocks, which had been under siege with the cloud of economic doldrums shadowing them almost as much as it has, say, retail stocks, were strong in the rally and are showing indications of their underlying businesses emerging from their funk. So this is also a good sign. And while many bears and short sellers still see more downward action on the markets approaching, at least it appears the bulls have a case.
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