Late Rally Lifts Markets To Cap a Turbulent Day

Washington Post Staff Writer
Friday, October 17, 2008; Page D01

Nervous investors staged a late-day rally yesterday, despite a series of gloomy economic data and battered corporate earning reports.

The Dow Jones industrial average closed up 4.68 percent, or 401.35 points, to 8979.26, while the Standard & Poor's 500-stock index was up 4.25 percent, or 38.59 points, to 946.43.

The rebound followed a volatile day of trading. The Dow sank as much as 380 points in early trading before slowly regaining ground. It appeared to be headed for a flat day, bouncing between small gains and losses, before surging during the last hour. Investors clawed back some of Wednesday's deep losses, when the Dow lost more than 700 points, and analysts said they poured into the shares of companies less vulnerable to an economic downturn, betting that the market had passed its low point.

The tech-heavy Nasdaq received the largest boost, closing up 5.5 percent, or 89.38 points, to 1717.71. The index was buoyed by a 11 percent surge in Yahoo's share price after Microsoft's chief executive, Steve Ballmer, said a deal between the companies may still make economic sense. Yahoo rejected a previous offer from Microsoft, which was up 5.5 percent. Both firms were among the most actively traded in the Nasdaq yesterday.

Consumer stocks, such as Clorox and Kimberly-Clark, the maker of baby diapers and paper towels, also outperformed the market. They were up 5 and 7 percent, respectively. Bargain hunters thinking the market was near its bottom were looking for a place to wait out the volatility, analysts said.

"There was a definite rotation into more defensive plays, especially those with brand names, products you use throughout the economic cycle," said Christopher Versace, portfolio manager at Agile Capital Management in Reston.

But some market watchers shrugged off the rally. "This is a sucker's rally," said Joseph Brusuelas, chief U.S. economist at Merk Investments. "There's a very difficult period ahead."

Yesterday's rally came despite two bleak reports, including one from the Federal Reserve showing that industrial production fell 2.8 percent in September, the deepest plunge since December 1974. Meanwhile, the Federal Reserve Bank of Philadelphia said that factory activity in the mid-Atlantic region is seeing its largest one-month decline this month and that the region's manufacturing executives expect no growth in the next six months.

The drop in U.S. industrial production parallels a sizable drop in retail sales, reflecting the onset of a recession, analysts said. Those concerns were amplified by a National Retail Federation survey yesterday reporting that consumers planned to increase holiday-related shopping by 1.9 percent this year, the smallest increase since the survey began in 2002.

The Labor Department issued mixed economic data. New claims for jobless benefits dropped by 16,000 last week to a seasonally adjusted 461,000. That was a bigger drop than expected, though unemployment claims remain high by historical standards. And consumer prices were flat in September, according to the consumer price index.

Investors have also been spooked by the impact of the financial crisis on firms' balance sheets. Merrill Lynch, which is being acquired by Bank of America, reported a $5 billion third-quarter loss, while Citigroup reported a loss of $2.8 billion. Merrill Lynch was flat, up 0.6 percent, to $18.35 a share. Citigroup fell 2 percent, to $15.90 share.

The crisis also continued to drive down crude oil prices, which fell 3 percent, or $2, to $72 a barrel. This is only the second time crude oil has closed below $75 a barrel in more than a year.


Continental Airlines, up $2.91, to $15.75.

Hershey, up $2.27, to $35.24.

© 2009 The Washington Post Company