Wall Street shot higher today, lifting the Dow Jones industrials nearly 320 points after reassuring news from Goldman Sachs Group Inc. and Wal-Mart Stores Inc. quelled some of the market’s worst fears about the credit crisis and the economy. A plunge in the price of oil gave investors further incentive to buy.
Goldman Sachs heartened investors with word that it didn’t expect a significant hit from the subprime mortgage turmoil. Goldman Chief Executive Lloyd Blankfein, speaking at a conference held by Merrill Lynch & Co., said the bank has a short position in the subprime mortgage market and won’t be taking any significant charges to write off losses.
Goldman’s news helped offset an announcement from Bank of America Inc., which joined other big financial companies including Citigroup Inc. and Merrill Lynch that have recently revealed heavy writedowns from soured mortgages; BofA said it will record 3 billion (-2.05 billion) in pretax writedowns in the fourth quarter.
Goldman’s assessment was the first substantial good news from the financial services industry about a company’s credit exposure, and was comforting to investors whose fears about widening credit problems have sent Wall Street plunging over the past month.
“People just want to know what’s out there,” said Todd Leone, managing director of equity trading at Cowen & Co. “They want to feel like they’re being told the truth.”
Meanwhile, Wal-Mart, the world’s largest retailer, reported third-quarter profit surpassed projections and hinted that consumer spending might be stronger than anticipated this holiday shopping season. The results also showed that heavy discounting during the period did not hurt margins, which the company said bodes well for the fourth quarter.
A sharp pullback in energy prices also encouraged Wall Street. Oil prices plummeted after the International Energy Agency reduced its expectations for demand in the fourth quarter and next year and said crude supplies are growing. Light, sweet crude for December delivery fell 3.45 to settle at 91.17 a barrel on the New York Mercantile Exchange.
The Dow rose 319.54, or 2.46%, to 13,307.09.
A day earlier, a turbulent session pushed the Dow below 13,000 for the first time since August. Tuesday’s advance snapped a four-day losing streak for the blue chip index.
Broader indexes also rose sharply Tuesday. The Standard & Poor’s 500 index jumped 41.86, or 2.91%, to 1,481.04, and the Nasdaq composite index gained 89.52, or 3.46%, to 2,673.65.
“Over the last week there has been so much bloodshed on the Street, it’s finally enticed people back to the market,” said Ryan Larson, senior equity trader at Voyageur Asset Management. “At some point, it’s hard to turn your head when all these issues become so cheap.”
Bonds fell as investors moved back into stocks. The yield on the benchmark 10-year Treasury note rose to 4.26% from 4.22% late Friday. The market was closed Monday in observance of Veterans Day.
Gold prices declined, settling at 799 an ounce on the Nymex. It was the first close below 800 since Nov. 2. The dollar was mixed.
Investors were expected to position their portfolios ahead of key economic data out during the week. Two key barometers of inflation and the economy will be released, with the Labor Department’s Producer Price Index on Wednesday and the Consumer Price Index on Thursday.
News in the troubled housing market was mixed Tuesday, but didn’t spoil Wall Street’s rally. The National Association of Realtors said its index for pending home sales edged higher in September at a seasonally adjusted annual rate of 0.2% to 85.7 from 85.5 in August. It was the first increase since June. However, the trade group said it expects the market slump to worsen into 2008.
Goldman shares gained 18.33, or 8.5%, to 233.04, while Bank of America added 2.29, or 5.2%, to 46.27.
Wal-Mart spiked 2.65, or 6.1%, to 45.97 after the retailer said quarterly profit rose 8% as it heads into the holiday shopping season. Chief Executive Officer Lee Scott said it has been a tough year for consumers, but that the company’s new focus on pricing is paying off.
TJX Cos. – the operator of T.J. Maxx and Marshalls – reported third-quarter profit rose 13%. Results, which missed Wall Street expectations, were hurt by unseasonably warm early fall weather. Shares added 1.10, or 3.8%, 30.42.
Home Depot Inc., the world’s largest home improvement chain, reported third-quarter results fell 26.8% because of the continuing slump in the housing sector. Shares rose 66 cents, up 2.3%, to 29.12.
Troubled lender Countrywide Financial Corp. said total mortgage origination volume fell 48% in October due to continued weakening of the mortgage market and the company’s decision to cut down on its subprime lending operations. However, shares rose 53 cents, or 4%, to 13.72 after Countrywide said it significantly reduced some of its riskier loans that triggered recent financial problems.
The Russell 2000 index of smaller companies rose 22.06, or 2.88%, to 789.15.
Advancing issues led decliners by roughly 5 to 1 on the New York Stock Exchange, where 1.66 billion shares were traded.