Font ResizeReversing its steep decline from the previous week, Wall Street rebounded like a bungee jumper Monday, soaring more than 11 percent as major governments moved to commit trillions of dollars into plans to stabilize the ailing global banking system and unlock credit markets.
The Dow Jones industrial average rose a record 936.42 points to 9,387.61, up 11.1 percent, and was outperformed by the 11.8 percent gain for the technology-heavy Nasdaq and the 11.6 percent rise for the broad Standard & Poor's 500. All of those gains were among the largest percentage jumps for the indexes in their history, and the biggest in more than 70 years for the Dow and the S&P (the Nasdaq, which did not exist until 1971, posted a bigger one-day gain in 2001).
Stock prices soared as the Bush administration summoned executives from leading banks to discuss the federal government's $700 billion plan to shore up the financial system and get loans moving again. Meanwhile, European governments have signaled plans to put more than $2 trillion on the line to protect their own banks.
"This is a big problem, but it's a problem with a solution that is being pursued," said Meir Statman, a professor of finance at Santa Clara University. Statman, an expert on behavioral finance, said investors' sense of relief has been accentuated by the emotional roller coaster in recent days. "People are literally losing sleep over this, but the world is not coming to an end."
Statman predicted that Wall Street will "rattle around" in the coming days. "You can see that the joys become exaggerated and the panic becomes exaggerated. On Friday we had exuberance and panic on the same day, with panic winning out in the end."
Several analysts cautioned, however, that Wall Street's dramatic gain, while heartening, was itself a sign of the market's volatility and provided no guarantee that markets had bottomed out. Although hope is rising that government action would prevent an economic calamity, the prevailing outlook is for a profound recession characterized by rising unemployment and reduced consumer spending heading into the holiday season.
Much of Wall Street expected a rebound Monday after eight days of steep losses, analysts said, but Monday's rise surprised even the most optimistic traders. The Dow's jump far surpassed the previous one-day record of 499.19 points, or 4.93 percent, set during the dot-com boom. The Dow recovered about 40 percent of the blue-chip index's losses during the previous eight trading days.
The markets had tumbled as bank-to-bank lending came to a standstill, threatening the short-term lending that is critical to day-to-day commerce. As governments groped for a rescue plan, many investors yanked cash out of the market.
A weekend of reflection, however, had many investors searching for buying opportunities. Several major Silicon Valley companies, their market value hammered in recent weeks, enjoyed up arrows. Sun Microsystems stood out with a 19.6 percent gain, while Google rose 14.8 percent and Apple 13.9 percent.
But many valley firms are reassessing their business projections. Rackable Systems Chief Executive Mark Barrenechea on Monday cited "this abrupt financial and economic deterioration" in lowering its fiscal outlook. "The swift decline of the economy caused a demonstrable slowdown in corporate purchasing as we entered September," the server and storage products maker's CEO explained.
Wall Street figures to remain volatile in the coming days, analysts said, but hopes were lifted for a return to at least a modicum of stability even though back-and-forth movement is expected in the coming days. With the U.S. bond markets and banks closed Monday for Columbus Day, analysts said it was difficult for investors to determine how credit markets would react to the moves by major governments to take investment stakes in banks, including Washington's rescue plan for U.S. banks.
"I think we had enough negatives last week that if the government steps in we could have a pretty nice run. Is it off to the races? No, I don't think so. We have a lot of stuff to work through," said Denis Amato, chief investment officer at Ancora Advisors.
Amato and other analysts said the market appeared encouraged when the Bush administration said it is moving quickly to implement its $700 billion rescue program, even though many aspects of the stabilization plan remain fuzzy.
But some Wall Street analysts expressed doubt that the worst was over. "We're not through the woods," said Jim King, chief investment officer at National Penn Investors Trust. "We think there is collateral damage from this debacle." An increase in unemployment and reduced spending, he said, could hurt retailers and take stocks lower.
The Associated Press contributed to this article. Contact Scott Duke Harris at sdharris@mercurynews.com or (408) 920-2704.
