NEW YORK – Wall Street showed some welcome signs of stability Thursday, taking a downbeat gross domestic product report in stride and driving the Dow Jones industrial average up nearly 190 points in relatively calm trading. Even the last half-hour of the session, lately a period of turbulent activity, was comparatively quiet.
The market that a week ago was reeling from fears about recession was more composed after the Commerce Department's report that GDP fell at an annual rate of 0.3 percent during the third quarter — its worst showing in seven years. Analysts expected a 0.5 percent decline in GDP, the broadest measure of economic growth or contraction, but while the report was better than expected, it still pointed to an economy that is shrinking.
It's premature to say the market's volatility is over — most analysts expect trading to remain erratic for many months, and some believe investors will eventually test the lows that were reached on Oct. 10, when the Dow traded as low as 7,882.51. But Thursday's trading session was the most placid in weeks, a sign that the market might be in the process of bottoming, analysts say. The Dow was only briefly in negative territory, and traded in a range of less than 300 points — well below the 400- and 500-point swings that have become commonplace.
"It does look like the market is taking a tentatively better tone today," said Alan Gayle, senior investment strategist, director of asset allocation for RidgeWorth Capital Management. "Pessimism and skepticism have become the dominant mode of thinking. And that's usually when I think that the market is more ripe for a rebound."
The market did not erupt into frantic buying or selling in the last 30 minutes — a move that has become almost expected at the end of every session as big funds tried to raise cash to meet investors' calls for their money back, or rushed to cover their short positions. The last hour saw the Dow move in a range of 206 points, compared with a 370-point swing in the last quarter-hour of Wednesday's session.
Even though corporate earnings reports and outlooks have not been strong in recent weeks, there is a growing sense that business is not at a standstill. On Thursday, Exxon Mobil Corp. adhered to its five-year capital spending forecast, a day after Starbucks Corp.'s CEO Howard Schultz said it appears the coffee retailer's store traffic may have already bottomed out. And CVS Caremark Corp. said Thursday its third-quarter earnings rose 7 percent as its retail pharmacy revenue improved.
"There's the idea that life goes on, and will go on," said Richard E. Cripps, chief market strategist for Stifel Nicolaus, noting that the daily trading range Thursday for the Standard & Poor's 500 index was about half its October average. "The market sort of inhaled, and it was waiting to exhale — and you're seeing that now."
The Dow rose 189.73, or 2.11 percent, to 9,180.69.
Broader stock indicators also finished higher. The S&P 500 index rose 24.00, or 2.58 percent, to 954.09, while the Nasdaq composite index rose 41.31, or 2.49 percent, to 1,698.52.
The Russell 2000 index of smaller companies rose 23.30, or 4.75 percent, to 514.18.
Advancing issues outnumbered decliners by about 5 to 1 on the New York Stock Exchange, where consolidated volume came to 6.06 billion shares, down from 7.01 billion shares on Wednesday.
The Dow is still down 15 percent for the month of October, following the mid-September bankruptcy of Lehman Brothers Holdings Inc. that contributed to a freeze in the credit markets, and in turn, devastating losses on Wall Street.
While Thursday's move was not as large and immediate a boost to people's stock portfolios as Monday's 889-point advance in the Dow, analysts were more encouraged by Thursday's 189-point gain, saying it displayed less frenzy, and more deliberation and caution.
Another sign of a calmer stock market: Wall Street's fear gauge, the Chicago Board Options Exchange Volatility Index, or VIX, dropped to 62.90 from 69.96 on Wednesday and Monday's near-record level of 80.06. The VIX, which normally trades below 50, tracks options activity for the companies that make up the S&P 500.
Still, the credit markets showed signs that investors are still quite cautious, with short-term government debt still in demand. The yield on the three-month Treasury bill, regarded as the safest investment around and an indicator of investor sentiment, fell to 0.37 percent from 0.55 percent Wednesday. A drop in yield indicates an increase in buying. Meanwhile, the yield on the benchmark 10-year Treasury note rose to 3.97 percent from 3.86 percent late Wednesday.
Wall Street is likely to remain worried for some time about how much the economy will slow and whether the stock market's pullback adequately accounts for the an ancipated ongoing drop in corporate profits. If companies' outlooks for the coming quarters are more negative than the market expects, another wave of volatility and selloffs could follow.
But according to Michael Strauss, chief economist at Commonfund, investors were relieved that the GDP figures weren't worse and that, more broadly, investors are drawing some confidence from the government's array of efforts to revive the credit markets as boding well for a weak economy. On Wednesday, the Federal Reserve lowered the key federal funds rate by a half-point to 1 percent in an effort to make borrowing cheaper and, in turn, boost spending.
"I think it's sort of, 'What do you have to do to get someone back from cardiac arrest?' You have to shock them pretty hard and sometimes you have to shock them a couple of times. I think that's what going on here," Strauss said, referring to steps like the Fed's rate cuts and government cash injections in banks, which began this week.
Strauss contends the programs, most of which have yet to take effect, are creating some appetite for stocks that have been pounded down this month.
"I think we're seeing that transition from 'don't buy' to 'maybe we buy something,'" he said.
On Thursday, the dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude fell $1.54 to settle at $65.96 per barrel on the New York Mercantile Exchange.
Overseas, Japan's Nikkei stock average jumped 9.96 percent. Britain's FTSE 100 rose 1.16 percent, Germany's DAX index rose 1.26 percent, and France's CAC-40 rose 0.15 percent.