Wall Street's Wild Gyrations

The major indexes surged more than 6%, but only after falling to the lowest levels of the year amid dismal economic and earnings news

By Ben Steverman

Watch the Video…

The stock market insanity continues. Stocks surged higher Thursday on the faint hope that the tumultuous market might have hit bottom.

It was another whiplash session Thursday, as the major indexes drifted lower throughout the day on a host of bad news: Intel slashed its outlook for the fourth quarter. Weekly jobless claims hit a seven-year high. Wal-Mart Stores (WMT) earnings rose, but the world's largest retailer lowered expectations for profits next quarter.

But when that bad news pushed both the S&P 500 and the Nasdaq composite to their lowest points of the year, bargain-hunting investors took note. A buying spree in the last 50 minutes of trading sent stocks skyward.

On Thursday, the Dow Jones Industrial Average closed higher by 552.59 points, or 6.67%, to 8,835.25. The broad S&P 500 index jumped 58.99 points, or 6.92%, to 911.29. And the tech-heavy Nasdaq composite rose 97.49 points, or 6.5%, to 1,596.70.

It's hard for investors to celebrate the gains. After steep declines this week, major indexes still are below their closing prices on Monday, Nov. 10.

From Tuesday to Thursday, the Dow completed a 1,700-point round trip -- closing at 8,871 on Nov. 10, falling below 8,000 at midday on Thursday, then bouncing back above 8,800 by Thursday's close.

It's a continuation of wild volatility investors have seen for the last couple months, says Richard Sparks of Schaeffer's Investment Research. Thursday is the third time in a month that major indexes have rebounded strongly after dipping near their lowest levels of the year.

"Everyone wants the market to bottom and start going up," Sparks says. "It becomes a self-fulfilling prophecy to some degree."

During past recessions, the stock market has recovered well before the economy did. However, there are few reason to think Thursday's late-day optimism is sustainable.

"While equity prices will likely precede an upturn in the fundamentals, we think the global economic and [earnings] outlook needs to at least show tentative signs of stabilization before a lasting rally will ensue," wrote Sam Stovall, chief investment strategist at Standard & Poor's in a note.

One of the reasons stocks sold off Thursday morning was more awful news about the jobs market. Weekly jobless claims rose 32,000 to a 7-year high of 516,000.

"The jobless claims data are the closest thing that we have to a real-time indicator on economic activity," said John Ryding of RDQ Economics. "In short, the labor market is getting really ugly and this report will likely reinforce the Fed’s desire to cut rates again in December and put pressure on Congress to pass a stimulus package that extends unemployment benefits."

In other economic news, the September trade deficit eased to $56.5 billion from $59.1 billion in August.