* What a difference 24 hours can make! Buyers returned to the market in droves speculating that the worst for stocks has passed and in doing so rushed to cover bearish/short bets.
* Whilst the thought that the worst has passed, and that in itself remains to be seen, the market was encouraged by several things. Firstly it was revealed that the Senate and House had reached an agreement on a pact to overhaul regulation of the accounting industry and implement new punishments on executives that commit fraud. Secondly the market was encouraged by the news that the authorities showed some mettle by arresting executives of Adelphia for fraudulent corporate activities. Finally investors were buoyed companies stepping up to the plate to buy their own stocks. Merck rallied more than 9% after announcing its US$10bn buyback yesterday.
* The major industrial average dropped more than 150 points in the first five minutes of the trading session, then recouped the entire loss and tacked on a 200-point gain over the next two frantic hours. From there, it was up, up and away. The Dow Industrials finished 488.95 points, or 6.4%, higher at 8191.29 (52 wk High: 10673, Low: 7532), just short of their points largest gain ever. The Nasdaq soared 61.18 points, or 5%, to 1290.23 (52wk High: 2102, Low: 1192), while the S&P 500 surged 45.73 points, or 5.7%, to 843.43 (52wk High: 1226, Low: 776).
* The biggest question facing the market right now is whether the turnaround marks a bear market low or simply an intermediate-term low within an ongoing bear market. From a technical standpoint last night's trading was a key technical reversal with the market making a lower low and then a higher high to close at its peak.
* Volume was huge with the NYSE setting a one-day record of 2.74 billion shares. The Nasdaq saw 2.47 billion shares change hands. Market breadth was only marginally positive, however, with winners taking out losers by 20 to 13 on the NYSE and by 20 to 15 on the Nasdaq.
1) Financials: J.P. Morgan Chase tried to live up to its famous name for once, as the big bank held a conference call to reassure investors that the deals it devised for Enron were entirely legitimate. Its stock led the Dow back from the abyss, rebounding from an 8% deficit to a 16% gain as buyers returned. But these days, a banker's word isn't enough of a bond. Investors didn't really rest easy until the Standard & Poor's rating agency confirmed that J.P. Morgan would not face a rumoured liquidity crunch. "J.P. Morgan is not currently having any difficulties meeting obligations or accessing capital markets. There are no stock price triggers in any debt covenants that would accelerate the need for funds." Top rival Citigroup, its stock discounted 25% over the last two sessions on similar concerns about its liability in Enron's collapse, bounced 10%.
Other banks also contributed to the market's gains alongside energy suppliers, drug makers and retailers.
2) Earnings: The bearish growl echoing in the early hours from exchange to exchange across the globe nearly drowned out unexpectedly strong earnings from blue-chip chemicals giant DuPont. Its pro-forma Q2 profit of 71cps was 5cps above analysts' consensus and 15cps above the market's month-old forecast. Including one-time charges, the company still earned 54cps, a vast improvement on the loss of 21cps a year ago. DuPont also raised its profit outlook for the balance of the year and was rewarded with a 9% share-price gain that fed fresh fuel to the rocketing Dow.
* While many other beaten-up stocks rallied, shares of AOL Time Warner remained down 1.3%. After the closing bell the company posted a Q2 profit of $2.5 billion, or 24cps, on $10.6 billion in sales. Analysts had expected to see a profit of 22cps on sales of $10 billion. Separately, Chief Executive Richard Parsons disclosed that the SEC is conducting a "fact-finding" investigation into the way the company's America Online unit booked certain advertising transactions. The deals provoked questions after they were highlighted in the Washington Post report last week. Auditors Ernst & Young announced that they are standing by its accounting. The news of the probe was not well received by investors with the stock falling more than 7% in late trade.
Treasury Market
* Bonds fattened by stock-market misery slipped. The yield on the 10-year Treasury note rose 8bp to 4.49% while the two-year note yield added 6bp to 2.29%.
European Markets
* European stock markets recovered partially from an early tailspin as a volatile Wall Street reversed early falls. The major averages had crashed to multi-year lows on fears over financial stocks and the fragility of economic recovery.
* Warnings by pharmaceutical companies Akzo Nobel and Serono, and a similar announcement from software maker Business Objects further undermined confidence as each one warned economic weakness was hitting earnings. Adding to the nervousness, German conglomerate Siemens said its markets were still extremely challenging.
* Siemens added 0.8% after having fallen 9% after the company warned markets were still extremely challenging and saw the fourth quarter lower than the third. In the third quarter, Siemens posted net income of EUR725m against a EUR705m loss a year earlier but sales decreased 4% to EUR20.5bn and orders were down 20% in the quarter to EUR19bn.
* UK life insurer Prudential attempted to bring some stability by reassuring investors over its solvency levels. The six-week fall on the equity markets prompted fears it, along with other insurers, had been forced to sell equities to remain within regulations. Prudential said it had not reduced equity holdings. However, it said first half pre-tax profits fell to £166m from £364m a year ago as it wrote off bond losses and falls in the value of its equity portfolio. The shares gave up gains to close 1.3 %, and the prospects weren't rosy for the rest of the sector. Allianz lost 2%, Aegon slipped 10%.
* Axa tumbled 11.5%. The company denied a report that the insurance group would issue a profit warning for 2002, nor would it need to raise capital and it remained within solvency levels. It didn't help.
* In London the FTSE 100 dropped 80.90 points, or 2.1%, to 3777.10. When London closed the Dow was up about 100 points.
* In the telecom sector prices were a touch lower. British Telecom slipped 1.4%, Vodafone eased 0.5% and Cable & Wireless fell 2.9%.
* Mining stocks closed broadly lower. Rio Tinto lost 3.3%, BHP Billiton 4% and Anglo American 4.2%.
* Elsewhere Abbey National declined 2.9% on volume of 23.6mln shares, 1.6% of its issued capital, Alliance & Leicester dropped 2.9%, Brambles slid 2.2%, British Airways edged up 0.2% and BSkyB fell 3.5%.
* In Paris the CAC 40 index fell 46.47 points, or 1.5%, to 3023.69.
* In Frankfurt the DAX Index spiked 116.83 points, or 3.3%, to 3632.66. Deutsche Telekom paced the gain with a rally of 14.5%.
Commodity News
* August crude rallied $0.60 to $26.91 a barrel.
* August gold eased $2.00 to $310.60 an ounce.
* LME base metal futures closed weaker. Copper lost 1.3%, zinc & nickel 0.8% apiece and aluminium 0.6%.
Australian Stocks
London AQP: Aquarius Platinum plunged 10.4%, or 32.5p, to 279p (A$8.06) from the Australian close of $8.41. Volume was 414k shares.
BIL: Brambles Plc slipped 2.2%, or 5.5p, to 248p (A$7.16) to leave BIL Ltd at an 11.1% premium. Volume was 4.8mln shares.
BLT: Billiton fell 4%, or 12p, to 290p which leaves BHP at a 13.2% premium. Volume was 23.2mln shares.
RIO: RIO lost 3.3%, or 35p, to 1039p equivalent to A$30.02.
New York BHP: In ADR trade BHP added 1.4% to A$9.61 from the Australian close of $9.48. Volume was 436k ordinary shares equivalent.
NCP: In ADR trade NCP spiked 3.1% to A$ equivalent of $9.19 from the Australian close of $8.90. Volume was equivalent to 12.47mln ordinary shares. The spread finished at $1.49, or 19.4%.
PDG: In US trading PDG rose 2.4% to US$9.12 which values their bid for Aurion Gold at A$2.9349 a 7% discount to yesterday's close of A$3.14.
RMD: Resmed rallied 3.7% to A$4.74 from the Australian close of $4.53.
