Investors celebrated the end of one of the worst months in Wall Street history today with a surprising rally that gave the Dow Jones industrials their biggest gain since the end of July and the Standard & Poor's 500 index it's biggest jump since mid-August.
The Dow closed with a startling jump of 346.66 points, or more than 4.5 percent, to end at 7,938.79. The S&P was also up about 4 percent with a gain of 32.63 points to 847.91. The Nasdaq composite index lagged a bit behind the others, but still closed with a 3.5 percent gain, 41.66 points to 1,213.72.
Marketwatchers said the main reason for today's gains was that investors who had bet on the market to keep falling were caught off base when it blipped up in the morning and then were forced to cover their bets, driving stocks much higher.
Traders who expect the market to fall often sell borrowed stocks hoping to buy them back at lower prices. When prices rise, they must rush into the market to buy those stocks which pushes prices even higher and exaggerates the rally.
The other explanations offered by market watchers were a little dubious.
One report said that stock prices started climbing along with the price of crude oil after Hurricane Lili shut down oil production in the Gulf of Mexico. When crude oil futures climbed, so did the stock of Exxon Mobil Corp., the biggest oil company. Exxon Mobil, in turn got credit for boosting the Dow Jones industrials
Others noted that the market gained momentum when it was reported that Saddam Hussein had promised to give United Nations weapons inspectors access to Iraq.
Maybe those investors forgot what President Bush has been saying about Saddam's credibility.
Maybe they forgot that hurricanes only last a few days and that weather-related rallies in the futures market are notoriously short-term events.
Maybe they were so relieved that September is over that they forgot that October has historically been the second worst month for the stock market.
Still who can blame stock buyers for over-indulging after such a long dry spell?
If it hadn't sunk in how bad a month it was, Irwin Kellner, chief economist of CBS.marketwatch.com came up with a new comparison: it was the worst September since 1937.
Nothing has really changed since yesterday, the day's first potentially market-moving news event made clear. U.S. manufacturing industries pulled back last month for the first time since February, the Institute for Supply Management reported.
The organization of people who buy raw materials and supplies for big corporations said its manufacturing index dropped below 50, which is the break-even point between growing and shrinking, registering 49.5 for the month.
The national index confirmed the trend shown Monday by a similar measure of manufacturing in the Midwest, which was seen as a hint that the United States might be headed into a "double dip" recession.
That index actually signals a recession only when it drops to below 44, economists noted, and other measures of the economy are still showing moderate growth.
Construction spending, however, is still weak and consumer spending remains the biggest "if" for the economy.
Retail stocks fell again today because of concerns that Iraq and climbing oil prices will undercut spending.
Financial stocks recovered, however, lead by Fannie Mae, which reported significant improvement in measurements of the damage it is suffering because of record low interest rates.