Last Week

From Barrons

THE STOCK MARKET SALVAGED its worst month in 21 years with a rousing rally in October's final week, eking out the month's first back-to-back sessions of gains only in its final two days. But how long might this reprieve last?
Among the encouraging signs: The pitiless liquidation of early October has at least subsided. Stocks even climbed on Thursday in the face of the bad news that the U.S. economy shrank 0.3% last quarter. Buyers returned gingerly to the market for commercial paper, or short-term business loans, and rates there eased as governments continued to flood the financial system with liquidity. The U.S. central bank cut benchmark interest rates to 1% from 1.5%, and the International Monetary Fund earmarked $100 billion for countries caught in the vise of the credit crunch.
Last week's rallies unfurled slowly, with the buying picking up only as each session wore on without setbacks -- a sign bullish money managers who believe stocks are cheap still sought the comfort of the herd. Some of the buying was driven by short covering and the reluctance to miss any meaningful rallies. The conclusion of tax-loss selling by mutual funds whose fiscal year ends in October also helped stocks find their footing. So did the flow of money from bonds to stocks, as institutional investors rebalanced their portfolios to maintain target exposure to each asset class following bonds' recent rise and stocks' plunge.
The Dow Jones Industrial Average ended last week up 946, or 11.3%, to 9325. It was the Dow's biggest one-week point gain ever and its best percentage rise since 1974, but the blue chips are still down 29.7% this year. The Standard & Poor's 500 jumped 92 to 969, and that 10.5% rise was its best since 1974. The Nasdaq Composite Index enjoyed its best week since April 2001 in point or percentage terms as it rallied 169, or 10.9%, to 1721. The Russell 2000 had its best week ever, rising 66, or 14.1%, to 538.
That merely limited October's carnage. The Dow's 14.1% slide was its worst monthly loss since 1998. The S&P 500 absorbed its biggest monthly beating since October 1987 as it fell 16.9%. The Nasdaq skidded 17.7%; the Russell 20.9%.