What downgrade? Stocks regain losses

By Matt Krantz, USA TODAYUpdated 35m ago

Investors just hit the undo button: Stocks Monday completely erased the horrifying loss in the stock market following the downgrade of U.S. debt by Standard & Poor's.

The Dow Jones industrial average jumped 214 points to 11,483, putting it well above its level just before S&P floored the markets by stripping away the U.S.' prized AAA credit rating. The rebound shows just how much investors' nerves have calmed since the initial panic.

"Investors have pretty much shrugged off the downgrade," says Jack Ablin of Harris Private Bank. "It was more about undermining the confidence in Washington."

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Investors, still rattled by the brutal sell-off of the market that pushed the market into a turbulent correction, aren't ready to pronounce the end of stocks' troubles.

But they were at least encouraged by a number of developments, including the:

•Recovery of losses since the S&P downgrade. After S&P cuts its rating of U.S. debt from AAA to AA+ on Aug. 5, investors watched as 7.5% of their money vanished. But all that damage is repaired as the Dow is now 0.3% higher than it was the day of the downgrade heard around the world.

•Three-day winning streak. The Dow has strung together three-straight days of gains, something it hasn't been able to do since July 21. The Dow has gained 763 points, or 7.1%, over the three days. "It's nice to see a string of better days for the market," says Andy Brooks, trader at T. Rowe Price.

Stock trend

Dow Jones industrial average, five trading days
•Rise above key thresholds. The S&P 500 rose 26 points to 1204.49, which is important because it lifts the broad market measure above the 1200 level eyed by investors.

Despite these significant victories for the market, though, investors don't have to look hard to see just how much damage is still to be undone. Despite its rise, the S&P 500 is still 11.7% below its April high. That means stocks are still in a correction. Additionally, stocks are still down 4.2% this year.

"We're closing the gap, but it's not like it never happened," Brooks says.

The market is being supported by investors who can't resist the bargains many top stocks turned into during last week's sell-off, says Doug Sandler at RiverFront Investment Group. "When stocks get cheap enough, (investors) know … a lot of bad news is already priced in," he says.

Yet, investors are still unnerved, as most of the critical questions surrounding debt issues in the U.S. and Europe still haven't been addressed, Ablin says. Investors will be watching events in Europe for any developments, including a meeting today between France's Nicolas Sarkozy and Germany's Angela Merkel.

But the upward trend, whether part of a bottoming process or not, is welcome. "After the violent swings of last week, perhaps we are coming back to some degree of sanity," says Brooks.

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