A new day and a new week helped to bring about a new mood on Wall Street yesterday morning, as a return to merger Monday and bargain hunting in an oversold stock market led the Dow Jones Industrial Average to better than a 300-point gain in the first hour of trading. Helping to get things going was the announcement that Dow component IBM (IBM – Free IBM Stock Report) would be attempting to purchase Red Hat (RHT). Shares of the latter soared more than $50 on news of the proposed $34 billion transaction. IBM stock, though, faltered on the high price tag.

On balance, the market appeared in the morning, at least, to be on course to end a brutal month for the bulls on an up note. Elsewhere, as we headed into late morning in New York, the Dow was still up more than 250 points, while the NASDAQ was better by 60 points. The rally was broad at that point. Further helping the bulls to reverse things was a rally in the bank shares. That group recently had stumbled. Still, worries were persisting regarding a possible slowdown in earnings and some headwinds in the global economic outlook.

The morning rally also came after strong gains earlier in the day in Europe. One reason for the uptick across the pond was that a major ratings agency did not lower Italy's credit rating. Stocks also were up strongly in Germany, even though German Chancellor Angela Merkel said that she will not run for another term in 2021. She has led that nation for this entire century thus far. Also, by late morning, Treasury prices were declining somewhat, with yields on the 10-year Treasury note climbing to 3.11%. They would end slightly higher at 3.09%.

But, just as suddenly as the equity market rose in the morning, it fell back as we reached midday, with the Dow's advance shriveling to fewer than 50 points and the NASDAQ going negative for a time, as large, high-profile stocks on that index turned lower. However, as we headed a little further into the afternoon, the bulls started to regroup, so that the Dow would go back up by more than 100 points in the early afternoon, while the NASDAQ would return to the plus column, if somewhat grudgingly, and all-too briefly.

But this partial rebound would last just minutes and as we entered the final two hours of trading, the Dow turned lower, along with the S&P 500 Index and the NASDAQ, with the latter falling by more than a percentage point in short order. Things then would continue lower and get materially worse as we hit the final hour of the session. On point, the blue chip composite would eventually tumble by more than 565 points, while the NASDAQ would sell off by almost 250 points. In all, from peak to trough, the Dow would plunge some 900 points during the session.

Looking at the overall damage during the past month, the Dow has gone from just under 27,000 to barely above 24,000, while the NASDAQ, already deep in correction territory, has fallen from more than 8,100 to just over 6,900. The S&P 500, too, is in a correction. Meantime, after that selling squall, the bargain hunters would reappear, and the major indexes would more than halve their worst losses. In all, by the close, the Dow would be off 245 points; the NASDAQ would be down 117 points; and the S&P 500 Index would end lower by 17 points.

Breaking things down, losing issues would hold a three-to-two lead on gaining stocks on the NYSE, while six of the 10 major equity groups would post losses, led lower by technology and energy. The high-yielding utility group would run counter to the lower trend in a modest flight to quality and safety. Looking ahead to a new day now, we see that shares in Asia were generally higher, while stocks in Europe were mixed in early action. Also, Treasury note yields are up nicely thus far this morning and U.S. equity futures are suggesting a higher opening.

– Harvey S. Katz, CFA

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.