In stark contrast to Tuesday's sharp sell-off, the major averages bounced back in noticeable fashion today as a sense that stocks were oversold helped investors recoup almost all of Tuesday's losses and close at session highs.
The Nasdaq wiped out its 2.4% pullback from a day earlier while 146 out of 147 S&P industry groups traded higher, underscoring the broad-based nature of today's bounce. Yesterday, only one S&P industry group closed higher.
Today's rally validated the assertion that the selling related to disappointment over the August 7 FOMC minutes was overdone, and frankly, misinterpreted by many market watchers.
All 10 economic sectors finished sharply higher, paced by a 3.1% surge in Energy. Already this year's best performing sector (+16%), everything from Drillers to Refiners rallied in sympathy with a 2.5% surge in oil prices. Crude for October delivery closed at $73.51/bbl following much larger than expected declines in weekly crude and gasoline supplies.
Telecom (+2.9%) and Consumer Discretionary (+2.8%) turned in the next best performances, with the latter sector staking claim to the Dow's third biggest winner -- Home Depot (HD 36.52 +1.47).
Technology (+2.7%) sporting a similarly strong performance was more noteworthy since it carries a larger weighting than the aforementioned sectors. Apple (AAPL 134.08 +7.26) led the charge, soaring 5.7% after confirmation of a special media event left investors optimistic about new product offerings.
The Financial sector's resilience in the face of another Fed infusion, reports that a London-based hedge fund (Cheyne Capital) may liquidate its commercial paper unit, and an analyst downgrade on Bear Stearns (BSC 107.10 -1.32) for the third time in as many days amid more earnings uncertainty, reflected the market's appetite for picking up bargains.
The financial sector (+1.8%) was hit the hardest a day earlier (-3.2%), but got some help today after Moody's said leveraged loan commitments of major US investment banks do not have negative rating implications as liquidity remains sufficient and marking down the commitments is "manageable."
A restoration of confidence in the S&P 500's most heavily weighted sector was a key to the sustainability of today's recovery efforts. The S&P 500 is now up 3.2% for the year. Today's 2.2% advance nearly erased Tuesday's 2.4% sell-off.
With all eyes on Bernanke this week ahead of his opening remarks at a Fed symposium on Friday, news that the Fed Chairman reportedly told Senator Schumer the Fed is ready to "act as needed" gave stocks an added boost of confidence late in the day.
On the NYSE, where trading curbs again went into effect 30 minutes before the close, advancers outpaced decliners by a 5-to-1 margin. Volume was once again below average, but that is typical in the week leading up to the Labor Day holiday. While that suggests there wasn't a tremendous amount of conviction behind the buying efforts, market bulls will no doubt be pleased with the quick payback from Tuesday's losses.
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