Stocks' bumpy ride continued Thursday, including a late surge despite another strong dose of recession fears.
The Dow Jones Industrial Average swung in an 816-point range, including outsized gains and losses. The blue-chip measure finished 401.35 points higher, up 4.7%, at 8979.26, recouping more than half of the previous session's painful losses.
Economic reports out Thursday contained a few bright spots, including signs that U.S. inflation is in check. But the overall picture that emerged was one of a reeling economy that may take considerable time to right itself. Factory activity in the Philadelphia area slumped severely, and homebuilder sentiment remained at extremely depressed levels.
"Everyone is starting to change their [trading] models to figure out what stage of the recession we're in," said Anthony Conroy, head trader at BNY ConvergEx, a New York brokerage. "All the nervousness is breeding a lot of volatility. I've never seen swings like this," including occasional triple-digit moves in the Dow and other indexes in the course of a few minutes.
In the last 90 minutes of trading on Thursday, the Dow soared nearly 480 points. Traders said the move was driven largely by an influx of buyers attracted by what they perceive as low stock prices following an historic slide in the market. But it remains unclear whether that trend has been put to rest for good.
The small-stock Russell 2000 rose 6.9% to 536.57. The technology-focused Nasdaq Composite Index was up 5.5% at 1717.71.
But in general, investors remained jittery, a mood evident in the Chicago Board Options Exchange Volatility Index, which uses prices of options contracts to measure investors' nervousness about upcoming market swings. The measure, known as the VIX, briefly soared to an intraday record above 80, although it finished down 3.2% at 67.06 as the market rallied. Still, the latest reading is high in historic terms.
"The question of whether or not there is going to be a recession is moot at this point," said strategist Bob Hoye of the research firm Institutional Advisors in Vancouver. "It's just a matter of saving yourself some pain in your portfolio of stocks, bonds and everything else."
At several time lately when the Dow has flashed signs of life, it has failed to sustain them. The blue-chip measure has fallen in 10 of the last 12 full trading sessions, sliding about 17% during that stretch – nearly a deep enough slide to constitute a bear market unto itself.
Traders and analysts say the selling has been driven in large part by hedge-fund selling to meet margin calls from brokers and redemption requests from clients. Hedge funds surveyed by the San Francisco research firm TrimTabs reported about $43 billion in selling of various assets in September, a record.
That figure could go even higher once the October data are in hand, perhaps as high as $50 billion across TrimTabs' survey sample, which represents about a third of the secretive hedge-fund industry, said analyst Vincent Deluard.
In many cases, the funds seem to be raising cash preemptively, in anticipation of client redemption requests that may roll in later, said Mr. Deluard. He said that may mean the trend is getting ready to play itself out, but he added: "It's difficult to tell, because this situation is so unprecedented. The historical data aren't really any help to look at."
Monthly data on outflows from traditional mutual funds are due from research firm Lipper on Friday, and are also likely to show heavy activity, analysts said.
Crude-oil futures fell after a report showing a weekly rise in U.S. petroleum inventories, underscoring how weak demand for the commodity has become amid the broader economy's weakness. Crude futures contracts briefly fellbelow $70 a barrel, a price the commodity hasn't touched in more than a year.
Energy shares tracked crude early in the session but rose in unison with the rest of the market late in the day. Chevron, a component of the Dow industrials, finished 5.2% higher. The S&P's energy sector rose 5.7%.
Treasury prices fell and yields rose. The two-year note slipped 4/32, nudging its yield up to 1.620%. The benchmark 10-year note fell 2/32 to yield 3.955%. The yield on three-month Treasury bills nearly doubled to around 0.4%.
Elsewhere in credit markets, interbank lending rates improved. Three-month U.S. dollar Libor dropped to 4.5025% from Wednesday's fixing of 4.55%. The one-month rate fell to 4.2775% from 4.35875%. The overnight rate tumbled to 1.9375% from Wednesday's 2.14375%, edging closer to the Federal Reserve's fed-funds target rate of 1.5%.
Microsoft shares were up 6.8% after Chief Executive Steve Ballmer said that he thinks a Microsoft acquisition of Yahoo would still "make sense economically" for both companies' shareholders. Yahoo shares jumped 10.6%.
Citigroup shares slipped 2% after the bank reported a $2.8 billion net loss for the third quarter, reflecting $4.9 billion in credit losses and a $3.9 billion boost to its loan-loss reserves. Merrill Lynch reported a third-quarter loss of $5.2 billion versus a loss of $2.24 billion for the same period a year ago. Its shares were down about 0.6%.
Switzerland's government and central bank early Thursday offered emergency help to the country's two largest banks, UBS and Credit Suisse, although the latter declined a government capital injection. UBS shares rose 3.8% and Credit Suisse leapt 13.1%.