NEW YORK — A surprise interest rate cut and positive corporate earnings news sent stocks soaring Wednesday, vaulting the Nasdaq composite index to its fourth-biggest gain--and leading some on Wall Street to declare the bear market over.
Stocks already were rallying strongly, with Nasdaq up more than 100 points, when the Federal Reserve's half-percentage-point rate cut was announced at 10:54 a.m. Eastern time.
The stunning news nearly doubled Nasdaq's gain and lifted the Dow Jones industrial average more than 250 points in five minutes. Nasdaq eased a bit in late trading but still closed up 156.22 points, or 8.1%, at 2,079.44. The Dow gained 399.10 points, or 3.9%, to 10,615.83.
It was the busiest trading day in Nasdaq history, with 3.19 billion shares changing hands, and the second-busiest ever for the rival New York Stock Exchange.
All but five of the stocks in the Nasdaq-100 index--that market's biggest names--posted gains, and winners outnumbered losers on the Big Board by more than 2 to 1.
The Fed's action "increases the odds that this is the bottom" for stocks, after a yearlong bear market, said money manager James D. Awad, chairman of Awad & Associates in New York.
"This caught everyone by surprise. That's when the Fed is most effective," said Mario DeRose, chief bond strategist at Edward Jones in St. Louis.
Perhaps just as important, analysts noted that the market already had been rallying in recent weeks as more investors apparently began to view share prices at two-year lows as too attractive to pass up.
What's more, in recent days a number of major tech companies have signaled that their businesses are steadying, raising hopes that the worst of the decline in corporate profits is behind the market, or soon will be.
Nasdaq last week staged its first four-day advance since summer, with hard-hit technology stocks managing to stabilize even as bad earnings news continued to rain down.
"The market has already turned the corner; the Fed is only bolstering it," said Eugene E. Peroni Jr., director of equity research for John Nuveen & Co. in Radnor, Pa.
The central bank was worried that even if the aggregate economic numbers don't point to a severe downturn, corporate profits have been shrinking so fast that firms are cutting back as if a recession already were in progress.
With its rate reduction, "the Fed is saying to [companies]: 'Don't be afraid to spend,' " Awad said.
The Fed's rate cut was its fourth this year and left the central bank's key short-term interest rate at 4.5%, 2 percentage points below the year-end level and the lowest since 1994.
And Wall Street still thinks there's more to come: 24 of 25 major U.S. bond dealers surveyed by Reuters on Wednesday said they expect another rate cut at the Fed's next scheduled meeting May 15.
The bullish view on Wall Street is that, even though the market has been deeply skeptical in recent months that Fed rate cuts would stave off recession, the central bank is increasingly demonstrating that it is serious about rejuvenating economic growth sooner than later.
Historically, the stock market has almost always rallied in the wake of deep Fed rate cuts, analysts note.
Other market pros point out that the current bear market, 1 year old last month as measured by the Standard & Poor's 500 index and the Nasdaq composite, already is longer in duration than most significant market declines of the post-World War II era.
The glaring exception: The bear market of 1973-74, which lasted 21 months amid soaring oil prices, a surge in interest rates and the fall of President Nixon.
At some point in every bear market, selling exhausts itself and bargain hunters gain the upper hand. Whether that is the case now isn't clear, but many analysts have been encouraged by the action in tech stocks.
Beaten-down tech stocks led Wednesday's rally as investors rushed into many big names. Traders noted that key stocks had been rallying or holding up well in recent days--even in the face of more bad news.
Case in point: Cisco Systems, which disclosed after the close of trading Monday that its third-quarter sales would fall as much as 30% from the second quarter and that it would take one-time charges of $3.7 billion, partly due to write-offs of excess inventory.
It was grim news, yet the stock dropped only 54 cents in Nasdaq trading Tuesday to $16.66. Cisco came back with the rest of the market Wednesday, gaining $1.27, or 7.6%, to $17.93.
Meanwhile, companies with pleasant surprises were rewarded even more handsomely.
Computer chip maker Intel reported that first-quarter sales exceeded analysts' reduced expectations and forecast that second-quarter sales also would top estimates as more orders flow in from personal computer firms.
Intel shares leaped $5.24, or 20.1%, to $31.28.
IBM, which gained $6.53, or 6.8%, to $106.23 on the Big Board, kept the momentum going in after-hours trading with a report after the market's close that its first-quarter sales exceeded expectations.