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Stock Market Rises after Sharp Decline; Growth May be Slowing

By Jay Mathews
The Washington Post
NEW YORK

The stock market left investors dizzy with relief and motion sickness Monday as the Dow Jones industrial average soared 110.55 points, recovering two-thirds of its loss Friday.

"This is a bungee jumping market," said Robert H. Stovall, president of Stovall/Twenty-First Advisers Inc.

Analysts trying to explain the sharp turnaround said Friday's 171-point plunge by the Dow resulted from misplaced panic by bond traders and hedge fund managers when the government reported an unexpected increase in jobs nationwide in February. The report was taken as a sign the economy was overheating, and bond prices fell sharply, with stocks following.

By Monday, the analysts said, most investors had concluded the report gave a distorted view of the economy, particularly the inflation outlook, and stock and bond prices rebounded. The benchmark 30-year Treasury bond rose 1-1/16 points, and its yield fell to 6.62 percent from 6.72 percent.

The Dow, which fell 3 percent Friday, was up 2 percent Monday, closing at 5581.00, just 61 points below the high it set last Tuesday. Other indicators also were higher.

"Friday was a traders' day. Today was an investors' day," said Alfred F. Kugel, senior investment strategist at Stein, Roe & Farnham Inc. investment management in Chicago. Kugel predicted Friday that mutual fund managers would realize that the economy was still maintaining a safe, steady pace and buy more stock Monday, and that is what happened.

Analysts who shared the view that Friday's downturn would be temporary acknowledged, however, that such extreme swings suggest a market that is losing its upward momentum. After 15 months of one of the strongest stock markets ever, a change of pace seems likely.

"You get the idea that people are nervous and there are a lot of scared bulls out there," said Paul Isaac, a partner at MN Associates. "When bull markets get to the last stages, they tend to get choppier."

The Dow dipped slightly in the morning as traders filled sell orders placed overnight, but large fund managers bought more stock and by early afternoon a strong upward trend took over.