Markets Soar on Sales Report
Investors on Tuesday made a dramatic turn back to believing that the U.S. economy is on a solid growth track, driving stock prices, bond yields and the dollar all sharply higher.
A surprisingly strong government report on April retail sales helped restore flagging confidence in the economy’s prospects, analysts said. The Commerce Department said total April retail sales rose 1.2%, the biggest advance since October and double the increase economists had expected.
The news helped reignite bullish sentiment on Wall Street, where battered stock prices rocketed last Wednesday, only to give up much of their gains Thursday and Friday before rallying again Monday.
The Dow Jones industrials leaped 188.48 points, or 1.9%, to 10,298.14, building on Monday’s advance of almost 170 points.
The technology-dominated Nasdaq composite index, which jumped 3.2% on Monday, shot up 4% on Tuesday, gaining 66.51 points to 1,719.05.
After regular trading ended, Applied Materials, the world’s biggest maker of semiconductor-manufacturing equipment, said orders soared in the quarter ended April 28, further stoking hopes for the depressed tech sector.
Though stocks’ rally of the last two days has just returned major indexes to their levels of three or four weeks ago, some analysts said the combined action in stocks, bonds and the dollar this week suggests that investors are rapidly losing their fears about the economy sinking back into recession or stagnation. Those fears helped fuel a deep sell-off in stocks in April.
“It looks like a new recognition that the economy is going to be OK,” said James Glassman, economist at J.P. Morgan Chase Securities in New York.
The dollar, which has been sinking in value against key currencies since early April as some foreign investors have soured on the U.S. economy’s outlook, resurged Tuesday. The euro fell to 90.3 U.S. cents from 91.2 cents Monday.
Expectations of healthy economic growth drove Treasury bond yields higher, with the 10-year T-note ending at 5.28%, up from 5.22% on Monday and the highest since April 3.
Energy prices also jumped, with near-term crude oil futures in New York rising 98 cents to $29.36 a barrel, highest since September.
After trading ended, the American Petroleum Institute said U.S. crude inventories fell 7.4 million barrels last week, far exceeding the 2.5-million-barrel decline analysts had expected, according to Reuters. The rundown in oil supplies stems from continuing strong demand even as major exporters have cut production, analysts said.
Though rising energy prices normally might be viewed in a bearish light on Wall Street, they are another sign that the recovery remains on track, optimists say.
In April many investors had begun to fear that the economy was grinding to a halt, said Steven Wieting, economist at Salomon Smith Barney in New York. But a barrage of data in the last two weeks has pointed to continuing strength in consumer spending and a possible revival of corporate spending.
Wieting describes the economy as “weak but healing, [rather than] strong and faltering.”
It was computer networker Cisco Systems’ earnings report that helped fuel a 7.8% jump in the Nasdaq composite index last Wednesday, after Cisco expressed cautious optimism about demand.
Applied Materials’ strong report Tuesday on new orders could help keep the tech rally alive in the near term, some analysts said.
“Investors are wanting to put more money to work” in stocks that could benefit from a growing economy, said Ed Nicoski, analyst at U.S. Bancorp Piper Jaffray in Minneapolis.
For most of this year many investors have shunned tech stocks, fearing that earnings of those companies aren’t primed to rebound soon because corporate spending remains depressed. The Nasdaq index still is down 12% year-to-date.
Meanwhile, investors have been eager buyers of stocks in many consumer-dependent industries whose outlooks remain upbeat. Shares of home builders and consumer-products giants such as Procter & Gamble have been big winners, for example.
Home builders continued to gain Tuesday, along with stocks of major retailers. But tech stocks ruled the day, led by such sectors as software and electronic equipment.
Many investors remain suspicious of tech shares. Winners topped losers by more than 2 to 1 on Nasdaq on Tuesday, but trading volume was moderate after adjusting for the record activity in WorldCom shares.
A major issue is basic valuation: Tech stocks still are highly valued relative to expected 2002 and 2003 earnings. And investors have grown weary of the many short-lived tech rallies of the last two years.
Still, Nicoski said the action in tech shares over the last week suggests that some investors are beginning to hunt for relative bargains in the sector, given rising confidence in the economy overall.
Market Roundup, C8-9
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