Biotech Values

[DewDiligence]

Stocks Bounce Back from 3-Day Drop

http://online.wsj.com/article/SB10001424052748704852004575258042121799342.html

›MAY 21, 2010, 4:41 P.M. ET
By PETER A. MCKAY

Stocks solidified their gains heading into the closing bell as investors showed some willingness to put sidelined cash back to work, though many remained cautious about the outlook for Europe's financial system.

The Dow Jones Industrial Average was up 125.38 points, or more than 1.3%, at 10193.39, thanks in part to a flurry of buying in the last half-hour of trading. Though the session's gains were welcome, the average nevertheless snapped a two-week winning streak, off 4% for this week. The average is now down 9% from its 2010 high.

The S&P 500 rose 1.5%, led by a 3.6% jump in its financial sector following the Senate's approval of the biggest overhaul of the financial system since the 1930s. J.P. Morgan Chase rose 5.9%, Bank of America rose 4.5%, and Goldman Sachs Group rose 3.3%.

While the bill would set up new regulatory bodies and restrict the actions of financial firms, many traders have been looking forward to its passage in the short term to remove the uncertainty that came along with the months-long legislative debate over what the reforms might entail [similar to what happened with some healthcare stocks when ObamaCare was finally enacted].

"As long as people feel like they know what the rules are, they feel like they can position themselves to make money," said trader Peter McCorry, of Keefe, Bruyette & Woods. "It's the possibility that the rules might change in the middle of the game that scares people."

Fears about Europe's credit crisis also ebbed, though most traders and analysts say they will keep a close eye on the region in the weeks ahead, with volatility likely as the euro-zone works to stabilize its most heavily indebted members.

The recently battered euro recovered some ground, trading at $1.2576, up from $1.2511 late Thursday. The U.S. Dollar Index slipped 0.2%.

Helping to attract some buyers to the euro, both the lower and upper houses of Germany's parliament approved the country's contribution to the €750 billion ($938.33 billion) aid package from the European Union and International Monetary Fund bailout.

Stephen A. Lieber, chief investment officer of Alpine Mutual Funds, said the stock market's euro-fueled struggles lately should eventually prove to be a buying opportunity, though he's taking a cautious approach for now.

"It's certainly not a situation where you can just jump in with both feet and figure we've gotten the correction out of the way," said Mr. Lieber. "But if you can find the right types of companies, yes, there could be some opportunities that work for the long term. We're discussing some ideas along those lines now."

Commodities firmed after several days of steep slides. Copper, known as an economic barometer, edged upwards, helping to push the broad Dow Jones-UBS Commodity Index up 0.3%. Crude-oil prices gave back early gains but remained above the key $70 a barrel level.

Investors noted that the recent slump in commodities may now be helping the market back up as lower oil and metals prices helped reduce the inflationary pressure on China.

"Commodities have just taken a shellacking here over the past few weeks," said Keith Hembre, chief economist and chief investment strategist at American Funds of Minneapolis. "Some of what had been holding the markets back were fears of more pervasive tightening in China and some of those inflationary pressures have been eased a bit." That "removes the fear of a harder landing in China, which would be a risk to the markets more broadly on a global basis," he said.

Materials, which often trade lower when fears of monetary tightening in China escalate, gained. Freeport-McMoRan Copper & Gold rose 5.3%, while Titanium Metals gained 5.5% and United States Steel rose 3.1%. [The three mining companies I follow had big up moves: CLF and VALE +7%, BHP/BBL +6%.]

The flight toward safer assets ebbed. Treasurys prices edged lower, pushing the 10-year yield to 3.231%.‹