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Stocks Climb Back as Energy, Materials Rise

CNBC.com
Thursday, 17 Mar 2011 | 11:55 AM ET

Stocks climbed back from the lows of the year on Thursday amid largely strong economic reports and after sharp drops in all the major indices on Wednesday.

The Dow Jones Industrial Average gained more than 125 points after falling 242 points on Wednesday as traders whipsawed the blue-chip index with every news development in Japan's nuclear crisis.

Most Dow components gained, led by Hewlett-Packard , Chevron , and Alcoa .

The S&P 500 and the Nasdaq also jumped, with both rising more than 1 percent. The indexes wiped out all gains for the year as of Wednesday's close.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, sank nearly 11 percent to just above 26. On Wednesday, the VIX skyrocketed more than 20 percent to above 29.

Among key S&P 500 sectors, energy, materials and industrials gained, while utilities fell.

The markets started the session in a markedly different direction than Wednesday, when all the major indices fell to their lows for the year as investors reacted to the increasingly worrisome news over the nuclear crisis at the Fukushima Daiichi power plant. Stock zig-zagged higher and lower throughout the day depending on developments. As of the close Wednesday, half of the Dow components fell into the red for the year.

CNBC - Disaster in Japan - Japan Earthquake and Tsunami
CNBC - Disaster in Japan - Japan Earthquake and Tsunami

Today's moves are "working off some extreme oversold conditions," said Scott Redler, chief strategic officer at t3live.com. "But traders are not convinced we saw the lows yesterday," Redler added. There are "still a lot more headlines to deal with—the market has a lot to prove."

The bounce even extended to stocks of Japanese companies, which have tumbled since news of the earthquake broke last Friday. The iShares MSCI Japan Index fund, for instance, gained more than 5 percent.

The yen continued to be in focus after surging to a new record high against the dollar in late afternoon trading Wednesday, although Japan dismissed the need for G7 actionto put the brakes on the yen's rise. A strong yen may make it difficult for Japan to recover from the triple disasters of earthquake, tsunami and nuclear disaster. The dollar , meanwhile, fell slightly against a basket of currencies, while the price of gold strengthened above $1,400 an ounce.

Developments in Bahrain and Libya will keep oil supply in the spotlight Thursday. Bahrain arrested at least six hardline opposition leaders, a day after its crackdown on protests by the Shi'ite Muslim majority drew U.S. criticism and raised fears of a regional conflict.

Middle East Turmoil
Middle East Turmoil

In Libya, government soldiers battled rebelson the road to the insurgent stronghold of Benghazi on Thursday as the United States raised the possibility of air strikes to stop Muammar Gaddafi's forces.

Oil prices, meanwhile, began soaring again, rising more than 2 percent. London Brent crude rose above $113 a barrel, while U.S. light sweet crude rose above $100 a barrel. Also, the government reported Tuesday that crude oil inventories in the U.S. rose to 1.75 million barrels, while gasoline inventories fell by 4.2 million barrels.

The market was also facing quadrapule witching on Friday, a day in which contracts on stock index futures, stock index options, stock equity options, and single stock futures expire. This happens once every quarter, on the third Friday of March, June, September and December. Volatility is common in the market in the week before quadrapule witching as trades are settled.

Federal Express jumped after reporting earnings that fell slightly shy of expectations, but provided a forecast that was better-than-expected. Rival UPS also gained.

Lululemon , however, sank despite reporting sales that beat expectations, as traders focused on the yoga and atheltic apparel maker's ability to meet future demand.

Nike will release earnings after the close.

Markets on Volatility
How to find value in a volatile market, with Eric Thorne, Bryne Mawr Trust Wealth Mgmt., and Charlie Smith, Fort Pitt Capital Group.

Shares of General Electric on Thursday recovered nearly half the losses sustained since the close of trading a week ago, before the earthquake and tsunami hit Japan. The nuclear reactors in the crippled Japanese plant were made by GE and Hitachi. GE's nuclear sales account for 3 percent of revenue, according to Citigroup research.

Among tech stocks, Apple got a lift from Credit Suisse, which started to cover the iPad maker with an "outperform" rating. Apple's shares slid Wednesday after a downgrade by JMP Securities based on "deceleration" in sales among a key Apple manufacturing partner, Hon Hai.

In U.S. economic news, initial claims for unemployment benefits dropped 16,000 last week, giving an addititional lift to the market. The four-week average for claims dropped to 386,250, the lowest level since July 2008, according to the Labor Department. The news provided further assurances the job market is stabilizing.

Meanwhile, U.S. consumer prices gained 0.5 percent in February, up from a 0.4 percent rise in January, the Labor Department said. That's the largest gain for the CPI since June 2009.

Core CPI, which excludes volatile food and energy prices, rose 0.2 percent in February, the same pace as January. Disappointing wholesale inflation numbers were released Wednesday.

Industrial production fell 0.1 percent, more than expected, as a result of drops in gas and electricity utility production due to unseaonably warm weather, the Federal Reserve said. But, the Fed also said, factory production rose 0.4 percent as more cars, appliances, computers and furniture were produced.

The Philadelphia Fed Survey's index of manufacturing rose to 43.4 in March from 35.9 percent in February, the highest reading since January 1984. The new orders index rose 17 points, the sixth consecutive monthly rise.

Also, the index of leading economic indicators rose 0.8 in February, up from 0.1 in January, the Conference Board reported.

And in Europe, the Swiss National Bank kept interest rates on holdThursday despite an overall improved outlook for the economy, citing risks from Europe's debt crisis and the nuclear disaster in Japan.

On Tap Next Week:

FRIDAY: Quadruple witching; before-the-bell earnings from Allianz.

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DJIA
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USD INDEX
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S&P 500
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AA
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NASDAQ
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CVX
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EWJ
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FDX
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GE
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HPQ
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LULU
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NKE
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UPS
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VIX
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AAPL
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