NEW YORK – The stock market closed out a horrendous October, its worst month in 21 years, with a big advance Friday as more investors took chances on stocks turned into bargains by waves of intense selling. The session's advance — which gave the market its first back-to-back gains in more than a month — fed hopes that Wall Street has indeed found a bottom.
The Dow Jones industrials rose 144 points on the day but ended the month down 14.1 percent, while the broader Standard & Poor's 500 index lost 16.9 percent during October as the stock market fell victim to investors' anguish over frozen credit markets and what looked like an inevitable recession.
But the month did end on a far more upbeat note than anyone might have expected at the height of investors' despair just weeks ago. The Dow was up 11.3 percent for the week, its best weekly performance in 34 years, while the S&P 500 index rose 10.5 percent — a sign of stability that followed a growing sense that the series of government moves to unlock the credit markets would indeed help the economy move toward recovery.
Investors who have become used to bad economic news dealt calmly Friday with data showing a drop in consumer spending. Another reason for the advance: Mutual funds that had dumped stocks furiously before the end of their fiscal year on Friday were finished with their selling.
While the market capped a terrible month with a strong week, it likely will need to put the presidential election next week behind it and focus on the October employment report due Friday before committing to a direction. The jobs report should provide some insight into how long and how severe the economic downturn could be.
The market is "settling into a little bit of a holding pattern" ahead of the election and jobs report, said Craig Peckham, market strategist at Jefferies & Co. "The fear level has clearly subsided, but there's still a pervasive tone of unease."
On Friday, the Dow rose 144.32, or 1.57 percent, to 9,325.01 after rising as much as 274 and falling 62.
Broader stock indicators also advanced. The S&P 500 index rose 14.66, or 1.54 percent, to 968.75, while the Nasdaq composite index rose 22.43, or 1.32 percent, to 1,720.95.
The Russell 2000 index of smaller companies rose 23.34, or 4.54 percent, to 537.52.
Advancing issues outnumbered decliners by about 5 to 2 on the New York Stock Exchange, where consolidated volume came to a moderate 6.23 billion shares compared with 6.06 billion shares traded Thursday.
Wall Street's fear gauge, the Chicago Board Options Exchange Volatility Index, or VIX, fell below 60 on Friday, its first close below that mark in more than a week. The VIX, which normally trades below 50, tracks options activity for the companies that make up the S&P 500.
Friday's session saw advances by financial, industrial and consumer discretionary names. Financial stocks had been beaten down earlier in the month amid worries about the effects of the frozen credit markets. JP Morgan Chase & Co. rose 9.7 percent, while freight railroad Union Pacific Corp. rose 4.9 percent and J.C. Penney Co. jumped 11.3 percent.
The Dow's 11.3 percent gain for the week — mostly from an 889-point surge on Tuesday ahead of the Federal Reserve's second interest rate cut of the month on Wednesday — gave the blue chips their best weekly performance since Oct. 11, 1974.
Despite a stronger finish to the month, the Dow still remains down 29.7 percent from its Oct. 9, 2007, record close of 14,164.53. It has lost 18.4 percent since the Sept. 15 bankruptcy filing of Lehman Brothers Holdings Inc., the event led to the near-paralysis of the credit markets and a series of dramatic government steps aimed at stabilizing a faltering economy.
The S&P 500 index is down 38.1 percent from its October 2007 peak, while the Nasdaq is down 39.8 percent.
The market's stats during the month of October were unnerving:
• Paper losses in U.S. stocks came to $2.5 trillion for the month, according to the Dow Jones Wilshire 5000 Composite Index, which represents nearly all stocks traded in America. The 17.7 percent decline was the worst since the 23 percent drop in October 1987 — the month of the Black Monday crash.
• The Dow and S&P 500 had their biggest monthly percentage drops since October 1987.
• During the week of Oct. 10, the Dow plunged 1,874.19 points, or 18.2 percent, to finish at 8,451.19, its lowest close since April 2003. The week's decline at the time accounted for half of the blue chips' losses for the entire year.
• The Dow fell for eight straight sessions — the longest losing streak since the eight days of declines following the Sept. 11, 2001, terror attacks, when the blue chips lost 1,038.12, or 10.8 percent. During this stretch, the Dow lost a staggering 2,400 points, or 22.1 percent.
• The market's volatility was so intense that there were just three days during the month that the Dow didn't rise or fall in triple digits. The Dow set new records for one-day point gains, 936.42 and 889.35, and for one-day point losses, 777.68 and 733.08.
• The Dow's average point swing in the Dow was 593.75 points, more than twice the average this year. The largest point swing 1,018.77 occurred Oct. 10.
The stock market began the month anguishing over the House of Representative's rejection of the government's plan to bail out the nation's financial system — a program created after the freezing-up of the credit markets following Lehman's failure. But the ultimate passage of the plan gave the market no lasting joy — it was overshadowed by intense fears of a prolonged and deep recession, and the volatility and heavy selling that marked the month continued.
It was only after the government decided to invest money into the nation's banks that the market began to calm — there were signs that lending was starting to ease. There were still waves of selling, some of them due to hedge and mutual funds unloading their shares at the end of their fiscal year, but by this week, signs were emerging that Wall Street was righting itself.
"If I were writing a book, I think I'd call it 'October 2008,' because it included everything. It encompassed everything in this downturn," said Quincy Krosby, chief investment strategist for The Hartford.
"Assuming Oct. 10 was the bottom, it doesn't mean you don't get to a bull market cycle right away," she said. "There's still going to be a whole lot of choppiness. And always in a recessionary environment, surprises can spring up that you didn't plan for."
The week's relative stability offered investors some calm. And their reaction to economic data also showed a decrease in some of their anxiety. The Commerce Department said Friday that personal spending fell by 0.3 percent last month, as expected, the biggest decline since June 2004. Combined with flat readings in both July and August, it led to the worst quarterly performance in 28 years.
The Chicago Purchasing Managers Index, a measure of manufacturing activity, fell to a reading of 37.8 — much worse than the 48.0 figure that analysts anticipated. But the University of Michigan's consumer sentiment data came in at 57.6, slightly better than the 57.5 expected.
Alongside the unsurprisingly downbeat readings, investors also considered whether government help for struggling homeowners might be able to help stabilize the housing market and alleviate a worry for many homeowners, even those not behind on mortgage payments.
Fed Chairman Ben Bernanke, speaking by satellite to a Berkeley, Calif., conference said the housing finance system will require better safeguards to allow it to function during times of strain in the market. He outlined a number of possible ways to structure housing finance in the future, though he did not indicate his preferences.
The Bush administration is mulling a proposal that would help around 3 million homeowners avoid foreclosure by having the government guarantee billions of dollars worth of distressed mortgages. It could include changes to loans that would lower interest rates for a five-year period.
Treasury demand let up slightly as stocks rose Friday. The three-month Treasury bill, considered one of the safest assets around, yielded 0.43 percent, higher than 0.37 percent late Thursday. A higher yield translates to decreased demand. The 10-year Treasury note's yield was 3.96, down from 3.97 percent late Thursday.
The dollar rose against most major currencies Friday, recovering some of its losses this week. Gold prices fell.
Crude oil rose $1.85 to settle at $67.81 a barrel on the New York Mercantile Exchange.
Overseas, Japan's Nikkei stock average fell 5.01 percent. Britain's FTSE 100 rose 2 percent, Germany's DAX index rose 2.44 percent, and France's CAC-40 rose 2.33 percent.
The Dow Jones industrial average ended the week up 946.06, or 11.29 percent, at 9,325.01. The Standard & Poor's 500 index finished up 91.98, or 10.49 percent, at 968.75. The Nasdaq composite index ended the week up 168.92, or 10.88 percent, at 1,720.95.
The Russell 2000 index finished the week up 66.40, or 14.09 percent, at 537.52.
The Dow Jones Wilshire 5000 Composite Index — a free-float weighted index that measures 5,000 U.S. based companies — ended at 9,768.64, up 962.43 points, or 10.93 percent, for the week. A year ago, the index was at 15,673.36.
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