Indexes Soar, Cap 3 Big Days
Another strong rally in stocks Thursday boosted hopes that the market’s latest crisis has passed, as key indexes capped their best three-day performance since 1987.
The Dow Jones industrial average soared 255.87 points, or 3%, to 8,712.02, extending its gain since Monday to 8.3%.
The broader Standard & Poor’s 500 jumped 28.69 points, or 3.3%, to 905.46 and has risen 8.5% in three days.
For both indexes, those are the biggest three-day advances since the rally that quickly followed the October 1987 crash, according to data from Bloomberg News.
Many analysts remain hesitant to declare the end of the 29-month-long bear market, but this week’s surge has bolstered hopes that recent market lows may hold, at least for the near term.
Renewed strength in the dollar versus the euro and the yen over the last two weeks suggests that foreign selling of U.S. securities has abated, analysts said.
Standard & Poor’s investment policy committee in New York gave the market a vote of confidence Thursday, recommending that clients raise the equity weighting in their portfolios to 60% from 55%.
“The markets have been demonstrating increased resilience, holding above the lows of last month,” said Sam Stovall, senior investment strategist at S&P.; “Even though an extended period of ‘base-building’ is likely, we believe a bottom has been established and that the markets now have greater upside potential than downside risk.”
The S&P; 500 is up 13.5% from its five-year low reached July 23.
Still, many investment pros caution against exuberance.
“I wouldn’t get too comfortable, but it sure feels great to have three up days,” said Reg Gipson, president of Alpha Analytics Investment Group, a Los Angeles money management firm. He warned that geopolitical uncertainty--particularly the risk of war between the U.S. and Iraq--may limit the market’s upside.
Several sharp rallies have been nothing more than one- or two-day wonders as the bear market has dragged on over the last year. But now the Dow has notched its first three-day winning streak since early May, and its first three-day string of triple-digit gains in 17 months.
The technology-dominated Nasdaq composite index also has rebounded for three sessions, rising 35.62 points, or 2.8%, to 1,316.52 Thursday. It has jumped 9.2% since hitting a five-year low Monday.
Trading volume picked up Thursday, and winners outnumbered losers by more than 2 to 1 on the New York Stock Exchange and by 3 to 2 on Nasdaq.
In another encouraging sign, the rally gained strength late in the day as professional traders made bullish bets, Gipson said. Major indexes closed at or near their highs for the session.
U.S. bank stocks got a big lift as the International Monetary Fund’s bailout of Brazil doused worries about an economic meltdown in South America.
Meanwhile, analysts said concerns may be fading about a rash of corporate earnings restatements ahead of Wednesday’s deadline for the largest companies to certify their results. If the deadline passes without major surprises, the market could get another shot of confidence, Gipson said.
Although Federal Reserve policy makers aren’t expected to trim interest rates at Tuesday’s meeting, there remains a strong sense on Wall Street that the Fed will do so in the fall if economic growth continues to slow.
On Thursday, data showing weak retail sales in July provided a reminder that the recovery could be running out of steam. But more investors appear to be betting that the worst of the news this summer is over, and that many stocks have become too cheap to ignore.
What’s more, technical factors could help stoke a rally. For example, a record number of shares have been sold “short” by bearish traders. They could rush to close out those bets as prices rise. That would add more fuel to a rebound.
Gipson, however, cautioned that tensions between the U.S. and Iraq, as well as continuing fears involving terrorism and the Middle East, will keep uncertainty high.
“Until we get more clarity on the political front, that’s going to put a lid on what the market does,” he said. “The steady drumbeat that something is going to happen is particularly unsettling.”
Among Thursday’s highlights:
* European markets were up sharply, following Wall Street’s lead. Key indexes rose 6.2% in Germany and 3.6% in both France and Britain.
In Brazil, the main stock index leaped 4.5% to 10,315, and the nation’s currency, the real, strengthened to 2.92 per dollar from 3.02 on Wednesday and 3.5 a week ago.
* The dollar rallied with stocks, while bond yields rose. The dollar rose to 121.03 yen from 120.17 on Wednesday. The yield on the benchmark 10-year T-note jumped to 4.39% from 4.31%.
* Blue-chip winners included Pfizer, up $1.49 to $33.16; Johnson & Johnson, up $2.06 to $54.57; Honeywell, up $2.13 to $33.87; and AT&T;, up 49 cents to $9.80.
* In the tech sector, Microsoft gained $1.82 to $48.91, IBM surged $2.44 to $71.61, and Nokia was up $1.23 to $12.48.
Market Roundup, C5-6
