(RTTNews) - After seeing significant weakness last week, the U.S. stock markets staged a substantial rebound during trading on Monday. The major averages all ended the session with standout gains, as traders went bargain hunting.

The strength in the markets came as optimism about the latest round of government measures to stem the credit crisis inspired some traders to pick up stocks at reduced levels. Nonetheless, it is worth noting that stocks remain well off their recent highs.

Earlier in the day, Neel Kashkari, the Treasury Department official tapped to oversee the government’s bailout of the financial markets, outlined how the government will utilize the $700 billion rescue plan that was passed earlier this month.

“Treasury is implementing its new authorities with one simple goal - to restore capital flows to the consumers and businesses that form the core of our economy,” Kashkari said.

Additionally, the Federal Reserve, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank jointly announced further measures to improve liquidity in short-term U.S. dollar funding markets.

While the BoE, ECB, and SNB said they would conduct tenders of U.S. dollar funding with 7-day, 28-day, and 84-day maturities at fixed interest rates, the Bank of Japan said it would be considering the introduction of similar measures.

Accordingly, the Federal Reserve said that is has authorized increases in the sizes of its temporary swap facilities with the BoE, ECB, and SNB, so that these central banks can provide U.S. dollar funding in quantities sufficient to meet demand.

Over the weekend, U.S. Treasury Secretary Henry Paulson confirmed that he is considering plans for the U.S. government to invest in banks. Paulson said the financial rescue package gives the Treasury Department authority to inject fresh capital into the system.

Meanwhile, the Group of Seven finance ministers signed a one-page statement pledging to work together to stabilize the markets. There were no specific proposals included in the statement, but the G7 expressed support for plans to partially nationalize a number of banks in the U.K. and U.S.

Peter Boockvar, equity strategist at Miller Tabak said, “The extraordinary steps that governments around the world have announced to stabilize the banks and interbank lending hopefully brings us to the end of this phase of the great deleveraging story and that concerns with massive bank failures and a collapse of the world’s financial system can be put to rest.”

Comment on the market performance, Tom Schrader, managing director of U.S. equity trading at Stifel Nicolaus told RTT News that the market has “compressed the spring to the point of maximum pain” and has reached an “intermediate bottom.”

While Schrader said we’re probably not going to go back up the way we came down, he stressed that we “certainly should start the process of a rally back up,” predicting gains of 10 to 15 percent off the lows. In addition, Schrader said it is a “great time to invest cautiously and conservatively.”

In other news, Wells Fargo (WFC) said that the Federal Reserve has approved its acquisition of Wachovia (WB), including all its subsidiaries. The acquisition, which still requires the approval of Wachovia shareholders, is on schedule to be completed by the end of this year.

The major averages saw some further upside going into the close, ending the session at or near their highs for the session. The Dow posted its biggest one-day point gain on record, closing up 936.42 points or 11.1 percent at 9,387.61, while the Nasdaq closed up 194.74 points or 11.8 percent at 1,844.25 and the S&P 500 closed up 104.13 points or 11.6 percent at 1,003.35.

Sector News

Benefiting from increases in most commodities prices, resource stocks turned in some of the market’s best performances. While traders continue to express some concerns about the outlook for demand, many feel that the recent sell off has been overdone.

Steel stocks posted particularly strong gains after falling sharply in recent sessions, resulting in a 23.6 percent gain by the Amex Steel Index. The gain by the index came after it ended Friday’s trading at its worst closing level in over two years.

Significant strength was also visible among oil service stocks, which rebounded along with the price of oil. With crude for November delivery closing up $3.49 at $81.19 a barrel, the Philadelphia Oil Service Index closed up 20.4 percent.

Outside of the resource sector, brokerage stocks posted notable gains, contributing to a 19.1 percent gain by the Amex Securities Broker/Dealer Index. Morgan Stanley (MS) helped to lead the sector higher, closing up 85.1 percent.

The gain by Morgan Stanley came after Mitsubishi UFJ Financial Group invested $9 billion to acquire 21 percent of the voting rights of Morgan Stanley. Traders had recently expressed concerns that Mitsubishi would not follow through on its proposed investment.

Despite the increase by the price of oil, considerable strength also emerged in the oil-sensitive airline sector, as reflected by the 14.5 percent gain posted by the Amex Airline Index. The index added to the 11.3 percent gain posted in the previous session.

While the price of oil regained some ground, traders are optimistic that the recent drop in oil prices will help to reduce jet fuel costs for the airlines. UAL Corp. (UAUA) and Continental Airlines (CAL) posted notable gains.

Most of the other major sectors also showed strong upward moves, reflecting broad based strength in the markets. Notable strength was visible in the telecommunications, utilities, and health insurance sectors.

Dow Components

Nearly all of the Dow components ended the session in positive territory, contributing to the standout gain posted by the blue chip index. Of the thirty Dow components, only General Electric (GE) finished the day below the unchanged line.

General Motors (GM) turned in one of the Dow’s best performances, with the auto giant closing up 33.1 percent. With the gain, shares of GM moved further off the multi-decade closing low set last Thursday.

The gain by GM came on the heels of reports over the weekend that indicated that GM has held preliminary talks to acquire Chrysler. In other news, GM said sales in the Latin America, Africa and Middle East region rose by more than 3 percent in the third quarter.

After falling sharply in recent sessions, shares of Alcoa (AA) also showed a strong upward move. The aluminum producer closed up 22.8 percent after ending last Friday’s trading at a thirteen-year closing low.

Most of the other Dow components also saw significant strength, with Chevron (CVX), Microsoft (MSFT) and American Express (AXP) posting notable gains. Chevron ended the session up 20.9 percent, while Microsoft closed up 18.6 percent and American Express closed up 17.9 percent.

On the other hand, General Electric was the only Dow component that ended the session in negative territory. Shares of GE closed down 2.3 percent, partly offsetting the 13.1 percent gain that it posted on Friday.

Other Markets

In overseas trading, most of the major Asia-Pacific markets ended Monday’s trading higher, with traders picking up stocks at reduced levels following recent weakness. Nonetheless, the Japanese market remained closed on account of a public holiday.

The major European markets also closed sharply higher after the European Union agreed to underwrite inter-bank lending. The French CAC 40 Index and the German DAX Index both closed up more than 11 percent, while the U.K.’s FTSE 100 Index rose 8.3 percent.

Looking Ahead

While there are no major economic reports due to be released on Tuesday, trading could be impacted by the release of quarterly results from Johnson & Johnson (JNJ), PepsiCo (PEP), Supervalu (SVU), and Grainger (GWW).

For comments and feedback: contact editorial@rttnews.com

Copyright(c) 2008 RealTimeTraders.com, Inc. All Rights Reserved

Posted in Categories: Economy, Eurozone, Japan, Releases, Switzerland, UK, USA.

Subscribe by RSS Subscribe by Email  Email This Post To A Friend