New York rally helps Dublin to soften losses as ISEQ dips to lowest level since 1998, writes Conor O'Clery, International Busines Editor, on Wall Street.
The bulls came thundering back on Wall Street yesterday, breaking records as bargain hunters drove prices up from their lowest levels in half a decade.
The Dow Jones Industrial Index recorded its heaviest trading day ever. The blue-chip index finished up 6.35 per cent, rising 489 points to close at 8,191.
It was the largest single-day percentage gain for the Dow since October 1987 and the second-highest point gain in one day since the Dow soared 499 points on March 16th, 2000. The Nasdaq surged 61 points to 1,290, a 5 per cent gain and its biggest one-day advance since May 4th.
The rally in New York helped Dublin ameliorate the worst of a very bad day during which stocks lost €2.2 billion. The ISEQ dipped to depths not seen since October 1998, before rallying to close down 3.69 per cent.
European markets managed to moderate losses in the afternoon, but there were still some big falls in heavy trading volumes.
"It was a very dramatic day," said Mr Peter Kenny of Kenny & Co from the floor of the New York Stock Exchange. "The market was dramatically over-sold, there was a huge technical rally. Everybody anticipated a big sell-off and put on their cash helmets, but it was a classic day of the market surprising everyone, and turning on a dime."
Mr Rupert McDonnell of McDonnell Trading said assurances from JP Morgan Chase in a conference call that its asset base was sound - scotching rumours that its exposure to the Enron scandal had left it vulnerable - caused a big rally in the capital markets.
Traders were optimistic that the rally would follow through today, as some earnings after the closing bell beat street expectations. However, Mr Todd Clark, head of listed equity trading at Wells Fargo Securities, was sceptical.
"Everytime we've had one of these violent rallies, it's been a classic bear market bounce with no follow-through," he said. Late yesterday, however, the SEC announced a fact-finding inquiry into AOL Time Warner accounts which could be a setback for the bulls.
The change in sentiment on Wall Street yesterday, after a relentless sell-off in nine of the last 10 sessions, was helped by news of agreement in the US Congress on legislation to crack down on corporate fraud. Treasury Secretary Mr Paul O'Neill also pronounced the US economy to be "fundamentally sound".
There were also persistent but unconfirmed rumours that the Federal Reserve was about to cut rates again. Some traders ascribed the red-hot recovery to asset re-allocation by big pension funds which found that the bear market had left them with too many bonds and too few equities.
But perception often drives Wall Street, and it did look yesterday as if something concrete was being done about the corporate scandals that have shattered confidence in stocks.
First came the highly public arrest of Mr John Rigas, founder of now-bankrupt Adelphia Communications. Then came the agreement at a joint Senate-House meeting on a bill to regulate accountants and impose more severe penalties on wrongdoers.
It will be sent to President George W Bush next week. Congressman Mr John LaFalce, the senior Democrat on the House Financial Services Committee, said the agreement was "a victory for investors, workers and for Democrats".
The legislation would separate audits from consulting, set up an oversight body for the accountancy, and subject executives to 20-year jail terms for corporate fraud. Back in Dublin, it was the banks which were hammered. Bank of Ireland was particularly hard hit seeing 60 cents wiped off its share. It ended at €9.90.
AIB was hit harder, with 88 cents knocked off its share price to finish at €10.92.
