Stocks’ start for 2010 is sign of hope
The new year started as a happy one for the stock market as investors displayed a willingness to take risks.
The Dow Jones index of 30 blue-chip industrial stocks jumped more than 150 points Monday as encouraging manufacturing data from the U.S. and abroad supported hopes that the budding economic recovery would gain momentum this year.
The rally came amid concern on Wall Street that the market could get rocky early this year after its sizzling gains since last March.
With the Dow rising 19% last year and other major averages doing far better, there’s fear that stock prices may have outpaced underlying economic fundamentals, especially with high unemployment restraining growth.
But stocks were driven higher Monday by the same dynamic that propelled them higher in recent months: a dose of good economic news that lured naysayers into the market.
As long as that streak continues, bulls argue, share prices should keep inching higher.
“It’s tough to argue against a continued drift upward,” said Dan Greenhaus, market analyst at Miller Tabak & Co. in New York. “The things that have been working are continuing to work.”
Bulls hang their optimism on the belief that earnings growth this year will come in stronger than expected as companies benefit from last year’s downsizing and reduced competition from weakened or bankrupt rivals.
“Underneath this market you have an uplift,” said Robert Bissell, president of Wells Capital Management in Los Angeles. “Earnings are going to eventually come in much higher than people guessed, and when that happens stocks will look pretty cheap.”
The Dow climbed 155.91 points, or 1.5%, to 10,583.96, its highest close since Oct. 1, 2008. The Standard & Poor’s 500 index rose 17.89 points, or 1.6%, to 1,132.99. The Nasdaq composite index advanced 39.27 points, or 1.7%, to 2,308.42.
The rally stirred hope that a positive showing in the opening days of the year could set the pace for the rest of this year.
Historically, the S&P 500’s performance in the first five days of the year has foreshadowed its direction the rest of the year 72% of the time. Over the last six decades, the early results carried through the year 43 times, according to the Stock Trader’s Almanac.
In the 37 years in which the market rose in the first five days, it notched annual gains 32 times, or 86% of the time.
However, opening-day rallies can be volatile and deceiving.
For example, the S&P rose more than 3% on the first trading day last year but slumped almost 9% for the month amid the financial crisis. It climbed 23% for the year.
With the books closed on last year, some institutional investors Monday may have been making asset-allocation shifts for the new year -- pumping cash into sectors they figure will do well this year.
That may have helped gold and other commodities, in particular, said Larry Young, senior trader at Infinity Futures in Chicago.
Near-term gold futures rebounded $22.50 to $1,117.70 an ounce. Gold had tumbled in December after reaching a record high of $1,218 on Dec. 3.
Crude oil rose for the ninth consecutive day, to $81.51 a barrel, its highest in 14 months. That lifted energy and materials stocks. Among the 19 commodities in the Reuters/Jefferies CRB index, 15 were up for the day, led by coffee, orange juice and wheat. The index surged 2.1% for the session after rising 23% last year.
A weakening dollar usually boosts commodities prices, and the DXY index of the dollar’s value against six other currencies was off 0.5% for the session as investors ventured into riskier stocks and commodities. The index had surged 4% in December as the dollar rebounded.
Helping to bolster the market, an industry survey Monday indicated that factory activity last month grew at its quickest pace in almost four years.
The Institute for Supply Management’s manufacturing index advanced to 55.9 from 53.6 in November, surpassing the 54.3 that economists predicted. A reading above 50 indicates expanding activity.
Surveys released overseas showed manufacturing in China rising the most in five years and activity in Europe at its highest level in 21 months.
Stocks also started the year higher in much of Europe and Latin America. The German market surged 1.5%, British stocks were up 1.6% and Brazil’s market jumped 2.1%.
