Stocks come back from steep losses

The stock market rebounded this afternoon off lows last seen in August, delighting many investors when the day ended with modest gains.

At the close, the Dow Jones industrials were up 52 points to 13,010. The Nasdaq Composite Index finished up 3 points to 2,597, and the Standard & Poor's 500 Index ended with a 6-point gain to 1,440.

The reversal of fortune came in the last 45 minutes of trading and saw the Dow jump more than 170 points to a gain of more than 90 points before falling back a bit at the close.

From high to low, the Dow experienced a swing of more than 267 points. The abruptness and size of the turnaround prompted some bulls to suggest the market had put in a bottom after selling off fairly steadily since mid-October.

When the Nasdaq finally turned this afternoon, it was down more than 10% from its Oct. 31 high. The abruptness of the turn was similar to a dramatic turn for the index -- and the Dow and S&P 500 as well -- in the afternoon of Aug. 16, when the Nasdaq was showing a 12% loss from a high reached on July 19. From that August low, the Nasdaq rose nearly 20% in the next 11 weeks.

Today's rally was prompted by traders who had sold borrowed shares short and probably wanted to book profits ahead of Thanksgiving -- or at least be sure they weren't exposed to any sudden shocks over the weekend. U.S. stock markets will operate normally Wednesday. After closing for the holiday, trading will be open until 1 p.m. ET on Friday.

The day's volatility came amid a flood of news, including:

• Crude oil closed at a record $98.03 a barrel, pushing energy stocks sharply higher. The Amex Oil Index ($XOI.X) climbed 2.7% to 1,438. The Philadelphia Oil Service Sector Index ($OSX.X) jumped 3.4% to 283. Offshore drilling company Transocean (RIG, news, msgs) jumped 4.4% to $122.02. There was talk crude could top $100 a barrel on Wednesday, when the government releases its weekly reports on domestic oil and natural gas inventories, or on Friday.

• A Federal Reserve forecast suggested slower economic growth for the balance of the year, giving many traders hope that the Fed will cut its key rates again at its Dec. 11 meeting, the last meeting of the year, or at its Jan. 29-30 meeting. In the morning and again in the afternoon, there were rumors of a possible emergency rate cut.

• Financial stocks were reeling from a huge loss reported by Freddie Mac (FRE, news, msgs), one of the biggest suppliers of mortgage capital, and persistent reports that Countrywide Financial (CFC, news, msgs) might seek bankruptcy protection. Countrywide called the reports "absolutely false." Freddie Mac finished down nearly 29% to $26.74, the worst performer among S&P 500 stocks. Countrywide, down as much as 22% during the session, ended with a decline of just 2.7% to $10.28. Fannie Mae (FNM, news, msgs), the largest mortgage capital supplier, fell 25% to $28.25.

• Companies such as Hewlett-Packard (HPQ, news, msgs) and Nordstrom (JWN, news, msgs) reported strong earnings. But Target (TGT, news, msgs) disappointed. H-P closed up 12 cents to $49.56. Target fell 4.1% to $51.69. Nordstrom was up 12.1% to $34.21, the best performer among S&P 500 stocks.

• The dollar moved lower again, which explains the gain in oil prices. Gold closed up $13.40 to $791.40 an ounce. The U.S. dollar index was down 0.8% to 75.18. The dollar fell 1% against the euro, 0.8% against the British pound and 0.5% against the Canadian dollar. The Canadian dollar is up 19% against the dollar this year.

When the dust settled, 278 S&P 500 stocks were higher, along with 20 of the 30 Dow stocks. ExxonMobil (XOM, news, msgs) was the Dow leader with a 4.4% gain to $87.82. Citigroup (C, news, msgs) was the laggard, down 1.9% to $31.40.

Several large tech stocks had big gains and helped the Nasdaq-100 Index ($NDX.X) finish with a 0.4% gain to 2,030.

Apple (AAPL, news, msgs) was up 3% to $168.85. Google (GOOG, news, msgs) jumped 3.6% to $648.54 on an analyst upgrade. And Microsoft (MSFT, news, msgs) added 1.8% to $34.58. (Microsoft is the publisher of MSN Money.)

Energy prices -- New York close

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$98.03	$94.64	$3.39	3.70%	60.57%
Heating oil (per gallon)	$2.6901	$2.6042	$0.0859	7.27%	68.35%
Natural gas (per million BTU)	$7.4770	$7.7870	-$0.3100	-10.24%	18.70%
Unleaded gasoline (per gallon)	$2.4515	$2.3816	$0.0699	4.76%	53.02%

The Fed worries about the economy

The minutes from the Oct. 30-31 meeting of the Federal Open Market Committee, the Fed's rate-making body, show that Fed officials' worries about the health of the credit system trumped any fears that cutting rates might reignite inflation.

"Participants generally viewed financial markets as still fragile and were concerned that an adverse shock -- such as a sharp deterioration in credit quality or disclosure of unusually large and unanticipated losses -- could further dent investor confidence and significantly increase the downside risks to the economy," the minutes show.

The fears appear warranted, given the big charges announced by the likes of Citigroup, Merrill Lynch (MER, news, msgs), Freddie Mac, Fannie Mae and others.

Meanwhile, the Fed forecast on the economy shows that, while the central bank see 2007 economic growth should be 2.4% to 2.5%, it cut its 2008 forecast to reflect the housing slump's effects and the impact of rising oil prices. The Fed now sees the economy growing 1.8% to 2.5% in 2008, down from a 2.5%-to-2.75% forecast in June.

Financial stocks, crude oil drag the markets lower

Freddie Mac and Fannie Mae were the biggest losers, but it was hard to find a winner among financial stocks.

Three of the four financial components of the Dow were the day's weak links for the index: American International Group (AIG, news, msgs) slipped 1.6% to $54.44. American Express (AXP, news, msgs) slid 0.6% to $57, and Citigroup had its 1.9% loss to $31.40.

JPMorgan Chase (JPM, news, msgs) finished up 0.6% to $41.63.

Whole Foods shares up despite earnings miss

After the close, shares of Whole Foods Market (WFMI, news, msgs) rose 2.3% to $43.20 after the company said fiscal fourth-quarter profit fell 15%.

The profit fell in part because the upscale grocer spent more money to open new stores. The company's board also increased the quarterly dividend by 11% from 18 cents a share to 20 cents.

Net income fell to $33.9 million, or 24 cents a share, in the quarter that ended Sept. 30, from $39.8 million, or 28 cents a share, in the year-earlier period. Analysts had expected the company to earn 30 cents a share, Reuters said. Fourth-quarter sales rose 25% to $1.7 billion, better than the analyst estimate of $1.61 billion.

Sales at stores open at least a year climbed 8.2%. Whole Foods' once-torrid growth in same-store sales has slowed, but the figure is an improvement from the 7% in the third quarter. For the year, total sales are expected to rise between 25% and 30%. About 10% of that is expected to come from Wild Oats stores, which Whole Foods acquired earlier this year.

Since peaking in December 2005, Whole Foods shares have fallen nearly 47%.

H-P results get no respect

Tech giant Hewlett-Packard late Monday reported fiscal-fourth-quarter profit of $2.16 billion, or 81 cents per share -- a 28% rise from the $1.7 billion, or 60 cents per share, the company earned in the same quarter last year.

• Top Stocks blog: Is H-P immune to the credit crunch?

Excluding one-time charges, H-P earned 86 cents per share, above the consensus estimate of 82 cents per share.

But the good news from the earnings didn't do much for the stock. It was up as much as 2.5% to $50.69 right after the open before falling to a loss of nearly 1.7% in the midday sell-off. But at least it came back to a small gain at the close.

H-P has become "a much stronger competitor" under Chief Executive Officer Mark Hurd, FTN Midwest Securities analyst Bill Fearnley Jr. told Bloomberg News.

Sales jumped 15% to $24.6 billion, although they missed The Street's estimate of $27.4 billion. The company's sales were $104.3 billion for the year, which ended Oct. 31. It was the first time that H-P topped $100 billion in yearly sales.

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Hewlett-Packard said profit for the current quarter would come in at 80 cents per share on sales between $27.4 billion and $27.5 billion. Analysts' consensus estimate was 78 cents per share on sales of $27 billion.

Freddie Mac's $8.1 billion write-down

Mortgage-financing company Freddie Mac said this morning that it is writing down $8.1 billion in assets in the third quarter.

The company reported a net loss of $2 billion, or $3.29 per share -- far worse than its loss of $715 million, or $1.17 per share, in the same quarter last year.

Freddie Mac is setting $1.2 billion aside to cover credit losses. The company also said it had hired Goldman Sachs (GS, news, msgs) and Lehman Bros. (LEH, news, msgs) to help raise capital and that it is considering reducing its dividend by 50%. The company expects to come to market soon with a preferred-stock issue.

Freddie Mac and Fannie Mae together own or guarantee 40% of the $11.5 trillion mortgage market, according to Bloomberg.

Housing still looks weak

The number of housing starts rose 3% in October from September to a seasonally adjusted annual rate of 1.23 million, the Commerce Department reported this morning.

The increase was a surprise to economists, who expected a decline to a 1.17 million pace last month from 1.19 million starts in September.

• Video: More on today's housing data

The positive starts number was overshadowed, however, by a dismal report on building permits. Building permits, a measure of future construction, fell 6.6% in October to a 1.178 million annual pace, the slowest in 14 years.

Housing starts are down 16.4% from October 2006, and building permits are down 24.5%.

Housing stocks tumbled on the news. The Philadelphia Housing Sector Index ($HGX.X) was down 2% to 133.39. Pulte Homes (PHM, news, msgs) fell 10.2% to $10.60. Lennar (LEN, news, msgs) sank 9.4% to $15.92

Nordstrom profits reassure investors . . .

High-end retailer Nordstrom's third-quarter results really were lovely: net income of $165.7 million, or 68 cents per share, a 22% increase from $135.7 million, or 52 cents a share, a year ago.

Excluding a gain from the sale of its Façonnable brand, Nordstrom earned 59 cents a share, topping analysts' estimates of 52 cents. The company slashed its third-quarter forecast in October to between 50 and 53 cents per share from a previous forecast of between 61 and 64 cents per share.

"The fear on The Street, especially after Starbucks last week . . . was that the high end was getting hit," Wentworth, Hauser and Violich portfolio manager Patricia Edwards told Reuters. "The rumored death of the high-end consumer is apparently wrong."

A number of other retailers -- including JC Penney (JCP, news, msgs), Starbucks (SBUX, news, msgs) and AnnTaylor (ANN, news, msgs) -- all reported disappointing forecasts last week.

• Video: Holiday humbug

While Nordstrom beat analysts' expectations for the quarter, the company forecast earnings between 88 and 92 cents a share for the fourth quarter, 2 cents below the consensus estimate. Nordstrom also forecast full-year earnings between $2.78 and $2.82 per share, below a previous forecast of $2.80 to $2.86 per share. But the new forecast is still ahead of Wall Street's estimate of $2.76 for the full year.

. . . but Target disappoints

Meanwhile, Target shares tumbled after the company's third-quarter earnings disappointed Wall Street.

The discount retailer said it earned $483 million, or 56 cents per share, a 4.4% decline from $506 million, or 59 cents per share, a year ago. Analysts had been looking for earnings of 62 cents per share.

The company blamed weak sales in its higher-margin categories.

Sales at Target did rise 9.3% overall to $14.8 billion, with sales at stores open at least one year up 3.7%.

• Video: Inside Target's earnings report

The company also said its board has authorized a new share-buyback plan of $10 billion.

The holiday shopping season is expected to be grim for most retailers, as rising energy costs and worries about the economy are expected to prevent consumers from spending a lot of money. The National Retail Federation is predicting that sales in November and December will rise only 4% to $474.5 billion, below the 10-year average of a 4.8% increase.

Sales in November and December can make up as much as half of annual sales and profit for many retailers.

Going gaga for Google

Google shares jumped when Credit Suisse analyst Heath Terry said the stock could climb as high as $900 per share by next year. Google will become the "de facto" operating system for advertisers, which will "create tremendous value for Google shareholders," Terry wrote in a note to clients.

Terry said Google is the best investment in the Internet sector, citing its potential to expand in its market share in "non-PC search-oriented markets."

Medtronic profit falls but beats Street

Medical-device maker Medtronic (MDT, news, msgs) reported a drop in fiscal-second-quarter profit late Monday, but the results were better than analysts had expected, and the stock was up 7% to $48.42 on the day. That was the third-best performance among S&P 500 stocks.

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Medtronic earned $666 million, or 58 cents per share -- down slightly from $681 million, or 59 cents per share, last year, but ahead of analysts' consensus estimate of 56 cents per share.

Profits were hurt by a recall of wires used to connect Medtronic's defibrillators to the heart. In October, the company said the wires could be faulty and had caused five deaths.

Sales rose despite the recall to $3.12 billion, up from $3.08 billion and topping Wall Street's forecast of $3.1 billion.

Short hits from the markets -- 4 p.m. ET

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	3.160%	3.275%	-0.115	-17.28%	-35.31%
5-year Treasury note yield	3.495%	3.569%	-0.074	-16.13%	-25.65%
10-year Treasury note yield	4.054%	4.079%	-0.025	-9.41%	-13.93%
30-year Treasury bond yield	4.484%	4.478%	0.006	-5.62%	-6.93%
Currencies
U.S. Dollar Index	75.06	75.79	-0.73	-1.89%	-9.16%
British pound in U.S. dollars	$2.0674	$2.0513	0.0161	-0.64%	5.50%
U.S. dollar in British pounds	£0.4837	£0.4875	-0.0038	0.65%	-5.21%
Euro in U.S. dollars	1.4826	1.4671	0.0154	2.42%	12.32%
U.S. dollar in euros	€ 0.6745	€ 0.6816	-0.0071	-2.36%	-10.97%
U.S. dollar in yen	¥110.00	¥109.74	0.26	-4.69%	-7.58%
U.S. dollar in Canadian dollars	$0.98	$0.98	0.00	3.77%	-15.91%
Canadian dollar in U.S. dollars	$1.02	$1.02	0.01	-3.54%	19.06%
Commodities
Gold	$791.40	$778.00	$13.40	-0.49%	24.04%
Copper	$3.0270	$2.9835	$0.044	-12.84%	5.43%
Silver	$14.5000	$14.5000	$0.34	0.43%	9.47%
Crude oil (NYMEX) (per barrel)	$98.03	$94.64	$3.39	3.70%	60.57%

By Charley Blaine and Elizabeth Strott