Stocks Continue Recent Surge With Broad Rally
Stocks continued their recent surge Monday, rallying broadly as investors shrugged off sluggish economic data and focused on positive retail news.
The Dow Jones industrial average jumped 212.73 points, or 2.4%, to 8,990.79 despite a report by the Conference Board that its index of leading U.S. economic indicators fell in July for the second straight month.
“It’s a surprising reaction by the stock market,” said Gary Schlossberg, senior economist at Wells Capital Management in San Francisco. “The specter of a ‘double dip’ recession looks that much more real, although I still think we can avoid it.”
The blue-chip Standard & Poor’s 500 index rose 21.93 points, or 2.4%, to 950.70, increasing the gain from its July 23 low to 19.2%. The technology-oriented Nasdaq composite index rose 33.53 points, or 2.5%, to 1,394.54.
Winners outnumbered losers by more than 2 to 1 on the New York Stock Exchange and by 3 to 2 on Nasdaq. Trading was moderate.
The Dow and the S&P; 500 are coming off four straight positive weeks, and Nasdaq has a two-week winning streak, boosting hopes that the 2 1/2-year-long bear market might have reached its end last month. But if the economy sinks back into recession, stocks could tumble below the multiyear lows reached during the summer sell-off, analysts said.
Schlossberg said traders may have been relieved that the index of leading indicators slipped less than forecast, even though it was the first consecutive monthly decline since April-May 2001. The index sagged 0.4 point to 111.7, versus expectations of a 0.5-point drop.
Also, much of the index’s decline came from its component that tracks stock market performance. The S&P; 500 was down 7.9% last month, but with the recent rally, that negative effect on the economy may be fading a bit, analysts said.
In addition to falling stocks, negative contributors included declining consumer confidence, a drop in factory hours worked, a decline in building permits and a narrower spread between the yield on 10-year Treasury notes and the Fed’s benchmark overnight lending rate.
Positive contributors to the index were a rise in the money supply, fewer jobless claims, and increased orders for capital and consumer goods.
Strong earnings reports Monday from home products retailer Lowe’s and toy seller Toys R Us bolstered investor confidence that U.S. consumers can keep the economy out of recession, analysts said.
Lowe’s surged $4.21 to $41 after saying second-quarter sales and earnings rose sharply; Toys R Us gained $1.08 to $13.90 after noting a narrower-than-expected loss in the quarter.
“Investors are ignoring the soft economic data and focusing on company news,” Schlossberg said.
More retail earnings reports expected this week, including one today from Home Depot, will offer better guidance about the strength of the consumer, said Russ Koesterich, U.S. equity strategist at State Street Global Advisors in Boston. Home Deport shares rose 93 cents to $29.03 on Monday.
Noting the day’s modest overall volume, Koesterich said he believes the market has been “moving based on momentum, not fundamentals.”
Semiconductor equipment stocks continued their recent rally despite a report from Deutsche Bank analysts warning that earnings in the sector could weaken in the coming months, Koesterich said. A report from brokerage UBS Warburg cutting its S&P; 500 profit estimates for this year and next “went virtually unnoticed,” he said.
In the chip sector, Micron Technology rose $1.28 to $22.13, Xylinx gained $1.28 to $22.24, Applied Materials added 77 cents to $15.47 and Advanced Micro Devices climbed 57 cents to $10.50.
In the Treasury market, yields fell for the first time in four sessions as traders reacted to the weak economic data. The yield on the benchmark 10-year T-note eased to 4.28% from 4.32% on Friday.
In other trading, the dollar surged against the yen after Standard & Poor’s said it may cut Japan’s credit rating. The greenback also strengthened against the euro as U.S. stocks rose.
Gold futures plummeted $7.70 to $306 an ounce in New York trading as investors, emboldened by a steadier tone on Wall Street, ditched safe-haven investments and moved funds into U.S. stocks.
In foreign stock trading, Japan’s Nikkei-225 slid 1.9%, but key indexes rose 4.2% in Germany, 3.5% in France and 2.2% in Britain.
Among the other highlights:
* Big stocks helping to lead the rally included General Electric, up $1.34 to $32.89; Microsoft, up $2 to $52; Pfizer, up 95 cents to $34.07; and Alcoa, up $1.34 to $26.11.
* In the retail sector, Circuit City climbed $1.13 to $15.86, Target gained $1.26 to $36.80 and Wal-Mart Stores rose 90 cents to $54.69.
* Financial stocks also helped lift the market, including J.P. Morgan Chase, up $2.35 to $27.21; Citigroup, up $1.45 to $36.35; Merrill Lynch, up $1.77 to $37.86; and insurer AIG, up $2.91 to $67.91.
* In the energy sector, Dynegy rose 60 cents to $2.29 after completing its sale of a natural gas pipeline, which investors hope will help the company ward off a bankruptcy filing.
* EarthLink gained 56 cents to $6.63 after it said it will offer free software that blocks pop-up ads.
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Bloomberg News was used in compiling this report.
Market Roundup, C7-8
