Wall Street shook off early doldrums and closed sharply higher yesterday after another drop in oil prices encouraged investors to set aside financial sector worries and go bargain hunting across the market. The Dow Jones industrial average rose more than 130 points.
Stocks initially fell on uneasiness about the continuing impact of the housing market downturn and the credit crisis on financial company earnings. Disappointing results from American Express Co. and Wachovia Corp. fed those worries.
But a US$3 drop in oil, which took crude's decline in recent weeks to nearly US$20 a barrel, persuaded some investors to wade back into equities.
Even Wachovia Corp, the fourth-largest US bank, shot 27 percent higher after its stock tumbled to levels not seen since the early-1990s. The stock was pummeled after the retail bank posted an US$8.9 billion loss because of charges and reserves for bad mortgage loans.
The focus on higher oil's impact on the economy has been so intense that any notch lower breeds optimism that the commodities bubble might perhaps be nearing an end, analysts said. That means, for the moment, corporate earnings reports have lost some of their dominance of the market.
The market was looking at the long-term impact of somewhat cheaper energy, and likely betting that company earnings would pick up if oil extends its decline.
"There's been so many people speculating about oil taking off and how to handle it, the whole economy has been focused on it," said Todd Leone, managing director of equity trading at Cowen & Co. "Just the fact that it has dropped, a big move down, helps out. There's the perception that this will get the economy going again."
He acknowledged that there was no shortage of disappointing results at America's biggest companies, American Express Co, Apple Inc, and Texas Instruments Inc all fell short of expectations. And Wachovia's miss was especially sobering for investors who last week sent stocks soaring after better-than-estimated reports from Citigroup Inc., JPMorgan Chase & Co and Wells Fargo & Co.
Global banks and brokerages have written down some US$300 billion of mortgage-backed securities and other risky investments since the crisis began last year. And Washington Mutual Inc. and E-Trade Financial Corp. also turned in losses after the closing bell in New York.
The Dow rose 135.16, or 1.18 percent, to 11,602.50. The blue chip index rose 400 points last week, but ended Monday's session slightly lower.
Broader indexes also rose. The Standard & Poor's 500 index jumped 17.00, or 1.35 percent, to 1,277.00. The technology-dominated Nasdaq composite index, which was down for much of the session on tech earnings disappointments, ended up 24.43, or 1.07 percent, at 2,303.96.
