The Dow Storms Back

NEW YORK: After trading at record volume and posting record gains, the Dow closed up 337 points Tuesday, retracing more than 60 percent of yesterday's record-setting slide. It may have happened because America's biggest cash-holders took matters into their own hands. "A lot of people are saying that IBM chairman Lou Gerstner saved the market (with this morning's $3.5 billion stock buyback)" says Fortune Magazine's Nelson Schwartz, "And they might be right. Investors love it--it shows that the company has both confidence in its stock and a lot of cash, and it insures that outside investors have liquidity, because they know that there's someone ready to buy."

It has a nice effect on a company's balance sheet as well: soon after CNBC reported that Intel had decided to join the buyback parade with a "major" stock repurchase, the stock had shot up ten points, and the Dow accelerated its own meteoric rise, quickly setting more records well over the 300-point mark. "Only in the U.S.," said Schwartz. "Business like IBM and Intel, like Microsoft, are sitting on such vast reserves of cash that they can exert this kind of boost on an entire market."

But Tuesday's record-setting stampede (an unprecedented 1 billion shares changed hands) may have cheated investors out of a real correction in a vastly overvalued market, and that the Dow is not done shivering yet. "This was a bad joke on the small investor," TIME Wall Street columnist Daniel Kadlec insisted. "It blindly reinforces the notion that buying on the dips is infallible--and that won't last forever. Today's rally was a reprieve, a second chance to shift your balance out of stocks somewhat because eventually, there will be a real correction."

But with lines forming at brokers' offices and the blistering pace of buying still accelerating at the closing bell, every buy order was a vote to the contrary.