US and European stocks surged back yesterday, galvanised by hopes that the worst was over after five weeks of selling, writes Conor O'Clery.
In what traders called a "relief rally", the Dow Jones Industrial Composite climbed steadily from the opening bell to record its third-biggest points gain ever. It closed up 448 points at 8711.8, a gain of 5.4 per cent.
European stocks shot higher, with bargain hunters focusing on the worst hit sectors in the recent sell-off. The Paris exchange closed 7 per cent higher, London ended up 4.6 per cent higher and Frankfurt jumped 7.9 per cent.
The Dow Jones has gained almost 1,000 points since Tuesday last week, when the blue-chip index suffered a four-session loss of 840.14 and closed at 7,7702.34.
While analysts cautioned that the rally might not last and that it was driven by bargain hunting, there were strong hopes that the end of the 900-day bear market could be in sight.
The Nasdaq also surged higher on hopes that the worst of the corporate scandals had already been factored into the market. It closed up 5.8 per cent at 1,335, a gain of 73 points on the session. A week ago it slid to a low of 1,192.
The Standard & Poor's (S&P) index of the 500 most popularly traded stocks was up 46 points at 899, a rise of 5.4 per cent. Only 24 of the 500 S&P stocks failed to record a gain yesterday in a rally that lifted prices across the board.
Investors shook off the latest report of accounting problems, this time at Qwest Communications, which said it had incorrectly accounted more than $1 billion (€1.02 billion) in revenue.
"Investors are just realising that the market looks pretty cheap today," said Mr John Forelli, portfolio manager for Independence Investment in Boston.
"The market shrugged off Qwest," he said. "Information like that should be priced into the market. But the credibility building is going to be a long and slow process. We are not looking at a rapid rebound like this every day," Mr Forelli added.
"We are not ready to anoint a new bull market, or even a bear market rally," Mr Brian Belski, fundamental market strategist for US Bancorp Piper Jaffray, wrote in a research note.
The rally raised hopes that the market found its bottom last week after a wave of selling, prompted largely by a collapse of confidence in corporate America.
The market recovery began last Wednesday when Congress agreed on legislation that would create tougher penalties for corporate fraud.
The Dow Jones soared 488 points on Wednesday, its second-biggest one-day rally ever.
In Europe yesterday, stock markets were sharply higher, with a strong showing on Wall Street helping bourses to extend their earlier gains. Financial stocks were firmer across the board, with insurers and life assurers leading the way.
Markets were also assured by the way New York shrugged off news of Qwest's restatement of results to chalk up significant gains.
The FTSE 100 was ahead by 4.6 per cent, boosted by a surge in banks and oils as investors dared to hope the worst of the bear market might be over after last week's six-year lows. Early FTSE gains accelerated into the close after New York markets burst higher.
The Irish market was muted by comparison, with the ISEQ overall index climbing 1.3 per cent on the session.
"You could say we underperformed our European peers," said one trader. "But then we didn't fall as far or as fast as them either."
Despite the gains, the mood was still nervous.
"Nobody out there is brave enough to call a bounce yet," said a broker. "With four winning sessions, there is an air of cautious optimisim but the key word is cautious."
Meanwhile, the dollar clawed back more lost ground against the euro and yen yesterday on signs that Wall Street might be stabilising after its recent gyrations.
The euro eased back to 0.9789 from its previous close of 0.9873 on Friday.
"The 'it's-the-end-of-the-world feeling' seems to have faded to a degree with stocks and I think that's also true for the foreign exchange market," said Mr Ron Simpson, senior currency analyst at S&P MMS.
