MarketView for May 10

Summary 

Sometimes it takes a bit of shock and awe to get things rolling and that is exactly what happened on Monday after the EU announced a $1 trillion emergency rescue package that removed much of the fear factor over the possibility that Greece would declare bankruptcy and the EU would likely collapse as a result.

The bailout fund approved by European leaders in the early hours of Monday drove the S&P 500 to its highest opening jump on record as indexes rushed back into positive territory for the year after last week's sharp slide.

Monday's gain ended a harrowing four-day string of losses for equities that had pushed major indexes down 7 to 9 percent. Regulators are still seeking the cause of a dizzying 9 percent intraday drop on Thursday.

Banks ranked among the top beneficiaries as the rescue deal opened up short-term lending markets and calmed fears of a possible Greek debt default. Bank of America ended the day up 6.9 percent, closing at $17.30.

The package of standby funds and loan guarantees available to euro-zone governments shut out of credit markets is on the scale of the U.S. government's $700 billion Troubled Asset Relief Program in 2008 designed to stave off the credit crisis and calm swooning markets.

The longer-term question is whether euro-zone nations that are now saddled with high debt loads will be able to manage their finances. The euro, which rose more than 2 percent during the session, erased most of those gains to trade slightly higher by the close of business.

All three indexes achieved their strongest gains since March 23, 2009 when the United States released details of a plan to buy toxic assets from banks after a market slide that had pushed indexes to their lowest in 12 years.

The CBOE VIX volatility index .VIX, known as Wall Street's fear gauge, fell 29.6 percent, the largest percentage drop in its history, to end at 28.84 after leaping to its highest level in more than a year on Friday. In another bullish sign, 88 percent of stocks in the S&P 500 remained in a long-term uptrend as of Friday, with their 50-day moving average above their 200-day moving average.

Technology shares were also among the top gainers after the Nasdaq entered a technical correction on Friday, falling more than 10 percent from a peak on April 23. Shares of Apple closed up 7.7 percent t $253.99, while Google was up 5.8 percent at $521.65.

Boeing was one of the best performers among the companies making up the Dow Jones industrial average, rising 6.4 percent to $71 after Goldman Sachs raised its rating on the stock. However, the top contributor to the blue-chip Dow's advance was up 7.4 percent to close at $66.69. McDonald's shares increased 3.8 percent in price to close at $70.58 after posting a rise in its April same-store sales. Suntech Power rose 11.8 percent to $11.73 after stating that its first-quarter revenue would exceed Wall Street's expectations. On the downside, Dean fell 28.4 percent to $10.47 after posting first-quarter earnings that missed estimates, while at the same time withdrawing its full-year profit outlook.

Circuit Breakers May Be Back in Style

Securities and Exchange Commission Chairman Mary Schapiro met on Monday with the leaders of major stock and option exchanges, as well as the brokerage industry watchdog, the Financial Industry Regulatory Authority (FINRA).

"As a first step, the parties agreed on a structural framework, to be refined over the next day, for strengthening circuit breakers and handling erroneous trades," Schapiro said in a statement that provided no further detail.

Regulators still have not pinpointed the exact cause of last week's 20-minute market roller coaster, when many stocks usually regarded as safe dropped precipitously for several minutes before recovering most of their losses.

There is now some sort of general agreement on revamping market safety valves that includes a circuit breaker, or pause in trading, that would apply across all trading venues, if an individual stock falls sharply. The word is that there is also some sort of an agreement on updating the existing broad circuit breakers for severe market declines,.

Currently, if the market falls more than 10 percent in a day before 2 p.m. local time, a circuit breaker is triggered and shuts the market down for one hour. If the market falls more than 20 percent after 2.30 pm, the market shuts for the rest of the day.

Both the Dow Jones Industrial Average and Standard & Poor's 500 index never reached the crucial trigger point on May 6. The Dow fell as much as 9.2 percent and the S&P was off as much as 8.6 percent during the latter half of Thursday's trading day.

Schapiro held a two-hour Monday morning meeting with the leaders of the New York Stock Exchange, the Nasdaq Stock Market, BATS, Direct Edge, the International Securities Exchange and Chicago Board Options Exchange.

The SEC and other regulators are scheduled to appear with exchange executives before a House Financial Services subcommittee hearing on Tuesday.

Four days after the market plunge and quick rebound, regulators are still scrambling for answers, multiple sources familiar with the investigation said. The Dow Jones Industrial Average briefly went into a 1,000-point tailspin on May 6, rattling investors worldwide.

Stock exchanges have canceled trades on more than 200 largely NYSE-listed companies, upsetting investors in other companies who sold their stock at the bottom.

Sources familiar with the investigation say a good deal of attention if being focused on a popular futures contract linked to the S&P 500 index.

A massive $1 trillion rescue package to safeguard indebted European nations cheered investors on Monday, with stocks racking up their best one-day gain in over a year. The CBOE VIX volatility index, known as Wall Street's fear gauge, fell 29.6 percent -- the largest percentage drop in its history -- to end at 28.84 after leaping to its highest level in more than a year on Friday.

One prevailing theory is that the sharp fragmentation of the stock marketplace and the accompanying patchwork of circuit breakers and safeguards exacerbated the market swoon. That market fragmentation is also slowing down regulators' ability to piece together what happened, two sources familiar with the matter said on Monday.

The NYSE introduced a trading curb on its floor Thursday that forced most trading to all-electronic exchanges such as the Nasdaq Stock Market and NYSE Euronext's electronic Arca venue, which did not have similar curbs -- a lack of uniformity seen as having worsened the wider market's drop.

Now, regulators and the industry appear to be eyeing something like NYSE's system as a template for the whole marketplace. The NYSE and Nasdaq, the two U.S. exchanges that list stocks, want to handle the reopening of markets following any future trading halts due to a circuit breaker, sources said.

Senator Charles Schumer called for new system wide circuit breakers that would put the brakes on free-falling individual stocks when a circuit breaker on one of the major exchanges is triggered. Senate Banking Committee Chairman Christopher Dodd said the panel will meet as early as next week with regulators to discuss the causes of the market plunge.