Oil Surge Powers Wall Street

US stocks climbed for the second straight day Wednesday, buoyed by an oil price rally after a sharp drop in US crude reserves suggested revived demand in the recession-stricken economy.

A jump in commodities gives Wall Street a boost as investors shrug off morning weakness to recharge the advance. The markets did a 180 degree turnaround on Wednesday as the Dow tumbled nearly 100 points at the open after a wave of selling overseas flooded onto Wall Street. But the bulls shrugged off the Chinese selloff, which sent the Shanghai Composite into another bear market. Energy stocks led the comeback as the sector rallied around a 4.7% spike in oil prices, which came after a bullish inventory report.

The blue-chip Dow Jones Industrial Average rose 61.22 points (0.66 percent) to end at 9,279.16, rebounding from an 86-point loss stemming from a China-led Asian share slide.
The tech-heavy Nasdaq composite climbed 13.32 points (0.68 percent) to 1,969.24 while the broad-market Standard & Poor's 500 index added 6.79 points (0.69 percent) to 996.46, just shy of the 1,000 point.

Combined with Tuesday's 83-point rally, the Dow has now recaptured more than half of its two-day plunge. Slammed by fears about the prospects for an economic recovery, the benchmark index tumbled 263 points in just two sessions, its worst stretch in two months. With earnings season nearing an end and politicians in Washington on recess, the bulls have struggled to find a reason to keep this summer's surge rolling.

“I could see us sort of staying here for the rest of the month -- that’s probably healthy. Unless something comes out earth-shatteringly good, I think we’re in flatline mode for a while,” said Art Hogan, chief market strategist at Jefferies & Co.

Stocks were under pressure in early trading following a broad-based decline in Asia, with Chinese shares slumping into a so-called bear market.

But the shares moved into positive territory after oil prices shot up on fresh government data showing depleting oil stockpiles that lifted market sentiment, dealers said.

"A jump in oil prices helped the energy sector lead a turnaround that took the broader market to a solid gain above near-term resistance levels," analysts at Briefing.com said in a client note.

Market action Wednesday came a day after shares rebounded largely on better-than-expected earnings reports from the retail sector. But investors remained cautious as indicated by the light volume over the past two days.

For the second straight session, fewer than one billion shares exchanged hands on the New York Stock Exchange, "suggesting that there hasn't been much conviction behind the recent moves," analysts said.

Following the rebound, stocks are down less than one percent week-to-date after Monday's 2.4 percent drop, which marked the stock market's worst single-session percentage loss in six weeks.
Despite the recovery, analysts predict greater market volatility ahead.

"The good news is that there should be enough bulls sitting on the sidelines to keep US stock market pullbacks from becoming meaningful, but with global market sentiment turning negative toward stocks, we expect to see selling pressure build in the US stock market even though signs of incremental improvement in our economy continue to emerge," said atreet trader Frederic Dickson

News from the Energy Department that the nation's oil inventory fell by more than 8 million barrels in the past week sent oil prices and then stocks higher, as investors bet that the decline in stockpiles is an indication that energy demand is rising and the economy is improving.

Leading the gains Wednesday were energy stocks, including Chevron, up 1.82 percent to $68.16, and ExxonMobil, up 2.27 percent to $68. Computer maker Hewlett-Packard dipped 0.30 percent to $43.83 after it reported a 19 percent fall in quarterly net profit. Alcoa dropped 3.41 percent to $12.48 after an analyst downgraded the aluminum producer's stock.

After the bullish inventory report, crude closed up $3.23 a barrel, or 4.67%, to $72.42 -- the highest settle since June 11.

A sharp increase in oil prices isn't typically something Wall Street cheers but the energy sector makes up more than 20% of the S&P 500. At the same time, crude oil is seen as a barometer for the economy. Increased demand for oil suggests better times ahead for the economy.

It was economic fears that again weighed on Wall Street at Wednesday's open as traders took their cues from overseas.

The plunge in Chinese shares reinforced the bears’ argument that stocks have gotten too far ahead of the still-weak economy. Strikingly, China’s bull-to-bear transition happened in a matter of days as the Shanghai Composite hit 2009 highs on August 4. Then again the index had been up some 80% from its lows.
“It’s dramatic enough to pay attention to. It’s looking a little wobbly over there. If they were in better shape than us, and they are having a sharp selloff, what does that mean when we look at ourselves?” said Frank Davis, director of sales and trading at LEK Securities..