Bill quoted in Financial Times

Wall St closes higher in volatile trading By Kiran Stacey in New York Published: March 25 2009 12:56 | Last updated: March 25 2009 20:54 Financial stocks surged more than 8 per cent in the last hour of trade on Wednesday, leading the market into positive territory despite a reversal in afternoon trade.

The market opened strongly after several pieces of good economic data added to confidence given to investors overnight by President Barack Obama.

Mr Obama allayed fears that his administration was hostile to Wall Street when he said: “We cannot afford to demonise every investor or entrepreneur who seeks to make a profit.”

But Lawrence Creatura, portfolio manager at Federated Clover Capital Advisors, said the constant announcements coming from Washington could have a destabilising effect. “It is a like a traffic light which flashes on and off so quickly that nothing is actually able to get through,” he said.

The market rose despite some fears over unclear messages from Washington as sales of new homes climbed unexpectedly for the first time in seven months, rising 4.7 per cent off record lows in February.

There were other encouraging signs for the housing market, as the Mortgage Bankers Association said there had been a 32 per cent increase in mortgage applications last week.

This came a day after the MBA said it expected mortgage demand would swell this year, bringing the number of new home loans to the fourth highest total on record. Homebuilders were some of the main beneficiaries. DR Horton ended 9.8 per cent higher at $4.50, while KB Home gained 4 per cent to $13.38.

But equities suffered a sudden reversal during the afternoon as a poor government debt sale wiped out early confidence, taking the S&P briefly back below the psychologically important 800 level.

A lack of interest in an auction of five-year Treasury notes led to fears that the government would fail to raise debt and lower interest rates as intended to stimulate the economy.

“The auction has thrown out some of the enthusiasm we have seen during this run up. The Chinese have been muttering about US debt and the Europeans are also angry with us. That makes investors nervous,” said William Rutherford, president of Rutherford Investment Management.

Telecoms stocks led the falls after S&P changed its outlook on the AT&T’s debt from stable to negative. The company fell 0.6 per cent to $26.18. It was followed by Verizon, on which S&P placed a negative outlook on June. Verizon fell 1.2 per cent to $30.15.

But financial stocks then rebounded dramatically shortly before the markets closed. JP Morgan was one of the biggest gainers, bouncing 10 per cent in the last hour to finish 8.2 per cent up for the day at $28.56. Bank of America rose 6.7 per cent to $7.70 and Wells Fargo lifted 5.9 per cent to $16.42.

American Express also rose despite JPMorgan rating its shares “underweight” and arguing that the company would face difficulties well into 2010. AmEx’s shares picked up 1.5 per cent to $14.11.

The benchmark S&P 500 index ended 1 per cent up at 813.88, while the Dow Jones Industrial Average gained 1.2 per cent to 7,749.81 and the Nasdaq Composite index picked up 0.8 per cent to 1,528.95. This put the S&P on course for its biggest monthly rise since 1991.

Arthur Hogan, chief market analyst at Jefferies, suggested that the late rally could have been due to covering of short positions and added that the quantitative models employed by some traders, many of which are designed to react to certain levels in a particular index or stock, could cause strange behaviour in the last minutes of trading session.

Orders for durable goods were the third piece of good economic data released on Wednesday, registering a shock 3.4 rise for February, with strength in machinery, computers and defence equipment. But the impact of that figure was diluted by a significant downward revision for January’s figures. Those numbers had an impact on industrial and materials stocks. Alcoa, the world’s biggest aluminium maker, was up 5.5 per cent to $7.72, while Newport Mining rose 4.5 per cent to $45.86.

Pfizer was a significant gainer rising 2.4 per cent to $14.26 after it was granted approval for Fablyn, the osteoporosis drug, from the European Commission.