Stocks Soar on European Pledge to Help Banks

What bear market?

Stocks surged on the latest positive news out of Europe Monday, the fourth sharp increase in the last five days. It's a dramatic turnaround from last Tuesday, when the S&P 500 index nearly fell enough to meet the definition of a bear market. Since then the widely used index has soared 8.7 percent.

Indexes soared in the U.S. and Europe after French and German leaders promised to strengthen European banks. The Dow Jones industrial average shot up 330 points, its largest one-day jump since Aug. 11. The euro rose against the dollar.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said they would finalize a "comprehensive response" to the debt crisis by the end of the month, including a plan to make sure European banks have adequate capital. Investors have been worried that European leaders weren't moving quickly enough to contain the fallout from a default by Greece's government.

"The more we can put our arms around the problem with a little more detail, the better, and time frames usually help," said Michael Sansoterra, a portfolio manager at Silvant Capital Management in Atlanta.

The Dow rose 330.06 points, or 3 percent, to close at 11,433.18. That's the highest the index has been in three weeks. Bank of America Corp. rose 6.4 percent, the most of the 30 companies that make up the index. JPMorgan Chase & Co. rose 5.2 percent. The Dow is up 7.3 percent since Oct. 4.

The Standard & Poor's 500 index rose 39.43 or 3.4 percent, to 1,194.89. On Oct. 4 the S&P 500 traded below 1,090, or 20 percent down from its recent peak in April. Had the index closed at or below that level, it would have met the common definition of a bear market.

The Nasdaq composite index rose 86.70, or 3.4 percent, to 2,566.05.

European stock markets rose and the euro strengthened against the dollar on the latest indication that European leaders were making progress on containing the region's debt crisis. Germany's DAX rose 3 percent and France's CAC-40 rose 2.1 percent.

Investors were also relieved that troubled Franco-Belgian bank Dexia would be partially nationalized. Dexia needed rescue because owns large amounts of government bonds of indebted countries like Greece and Italy.

European banks have become more reluctant to lend to each other, putting overextended banks like Dexia in danger. That prompted the European Central Bank last week to offer unlimited one-year loans to the banks through 2013 to help give them access to credit.

Investors have been worried that a default by Greece could cause the value of Greek bonds held by those banks to plunge, hurting their balance sheets. U.S. banks could also be affected if Greece goes through a messy default, since they own Greek bonds and also have close ties to European banks.

Apple Inc. rose 5.1 percent to $388.81 after reporting that first-day orders for its new iPhone topped 1 million. The phone goes on sale Friday.

Yahoo Inc. jumped 2.4 percent to $15.84 following reports that founder Jerry Yang may organize a buyout of the company with private equity investors.

Oil and gas driller Nabors Industries Ltd. jumped 6.6 percent after oil rose above $85 a barrel. It hit a 12-month low of $75 a barrel last week.

Alcoa Inc. will become the first major U.S. company to report third-quarter results after the closing bell Tuesday. The aluminum maker's stock rose 3.9 percent to $10.09. Panera Bread rose 4.3 percent to $108.47 after an analyst said the company may start to buy its own stock.

Bond trading was closed for the Columbus Day holiday.

Ten stocks rose for every one that fell on the New York Stock Exchange. Trading volume was light at 3.8 billion.

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Presently stocks are over valued, not only because of Europe but because of the stock price to earnings (the P/E Ratio) is high. Add in that government spending in both the US and the Euro Zone is going down, and taxes increasing means less money going into the economy. Point to Note: The Bigger the Boom, the Bigger the Bust. Yes, economic hangovers suck.

October 11 2011 at 6:23 AM Report abuse rate up rate down Reply

Well... That would not work.They would serve them kool-aid and satan sandwiches.Then pelt them with golf balls.

October 11 2011 at 2:19 AM Report abuse rate up rate down Reply

Maybe they will start an occupy congress movement.

October 11 2011 at 2:03 AM Report abuse rate up rate down Reply

Best keep the tar and feathers handy.Wont be long and congress will rear its ugly head.

October 11 2011 at 1:52 AM Report abuse rate up rate down Reply
Scott C

Economists. We cannot forget about the abuse of economic theory and how that provided the rationalization for the 2008 collapse and the current non-sense about austerity!!!!

October 11 2011 at 12:54 AM Report abuse rate up rate down Reply

Wall Street is cheering - ups and downs are just what they want - SO WALL STREET bail out the American People you worthless B--tar-s

October 10 2011 at 6:53 PM Report abuse -1 rate up rate down Reply
1 reply to zulaufs's comment
Chuck Crow

If you are sick just go away and you my friend are sick.

October 10 2011 at 7:50 PM Report abuse rate up rate down Reply