Stocks Rally But Still Have Dismal Month

Stocks closed with a big rally, led by beaten-down financial shares, but still ended having one of the worst Januarys in years.

The Nasdaq, in fact, had its worst January ever, plunging 10% for the month. That beat the previous record drop of 8.6% in January 1990.

Thursday's rally did help the Dow Jones Industrial Average pare its loss for the month to just 4.6%, nowhere near its worst January loss ever. The broader S&P 500 index fell 6.1%, also short of a record.

Thursday's session was typical of the market wild swings during the month.

After starting the day with a 170-point drop, triggered by an unexpectedly high gain in unemployment claims and concerns about bond insurers, the Dow reversed course and finished the day with gain of more than 200 points.

Investors were inspired by strong earnings and hopes that the Fed's aggressive rate cuts would help stabilize the economy. The market also was helped by short sellers who looked to cover their positions as stocks continued to climb.

Traders right now are taking some comfort in the strength of the financials," said Fred Froewiss, vice president of international sales at RF Lafferty. "Of course, in the short term I think we're still going to be at the mercy of headlines coming out of the credit markets, and with short interest at a relatively high level we could be poised for a rally here."

The major rating agencies are holding off downgrading bond insurers MBIA and Ambac Financial to give them time to work out a possible bailout plan.

Financials otherwise were performing well, led again by E*Trade Financial and American Express , which was the leading gainer of the Dow industrial components. Bank of America led national banks to the upside.

Shares of Home Depot rose more than 4% after the world's top home improvement retailer said it will cut 500 jobs at its Atlanta store support center, or about 10% of the headquarters staff.

"Clearly we're operating in a tough business environment," Home Depot spokesman Ron DeFeo said. "We see that continuing into 2008."

Home builders also posted strong gains, led by Pulte Homes even as the company said its orders tumbled and the company lost $875 million. Yet analysts said the builder was well-positioned and ready to respond to challenges for the year ahead, and the stock price soared. D.R. Horton also saw shares surge.

But pharmaceuticals were a drag on the broader market.

Bristol-Myers Squibb disappointed Wall Street, and Medicis was told by the Food and Drug Administration that an application for its cosmetics drug Reloxin was incomplete and a JP Morgan analyst downgraded the company. Merck , which posted a fourth quarter loss and has sustained questions over its cholesterol drugs, was one of two Dow stocks that finished lower for the day. The other was Altria.

Apple was among the leaders in the tech-heavy Nasdaq, as the company regained ground from a sharp selloff in its stock. Troubled coffee restaurant chain Starbucks weighed on the index after the company posted a quarterly profit but said it was eliminating breakfast sandwiches from its menu and was slowing the pace of new store openings.

In other markets, oil and Treasurys both reacted to the gain in stocks, with oil halving early losses to move about $91, while bonds surrendered early gains and stood at breakeven.

Colgate Palmolive jumped 4.1% after the consumer-products maker beat earnings expectations with a profit of 91 cents a share. The company said it cut costs and increased market share.

Burger King rose 8.2% after the fast-food chain beat expectations. BK said revenue rose 10% and that it has not experienced the slowdown that has hit other restaurant chains.

With earnings season halfway done for the Standard & Poor's 500, earnings overall are down 35.5% from year-ago levels and 18.6% below estimates.

© 2009 CNBC.com