Dow Posts Its Highest Close in 14 Months
Stocks rallied on Wall Street and abroad Monday as more investors bet on a strengthening economy. The Dow industrials hit their highest mark in 14 months, defying pessimists who have been expecting an extended summer slump.
“It’s all about the economy right now,” said Erik Gustafson, manager of the Liberty Growth Stock fund in Chicago. “The recent statistics and the second-quarter earnings reports have indicated the economy is growing. Investors are looking down the road four to six months and seeing further improvement.”
Stocks gained in part on Friday’s upbeat data on U.S. industrial production in July. The report wasn’t fully digested Friday because the Eastern power outage kept many players away.
The Dow Jones industrial average rose 90.76 points, or 1%, to 9,412.45, the highest close since June 20, 2002.
The technology-dominated Nasdaq composite jumped 37.48 points, or 2.2%, to 1,739.49.
Though trading volume has been subdued over the last week -- typical for mid-August -- some analysts have been impressed by the breadth of the market’s advance. The Dow and the Standard & Poor’s 500 have gained ground in eight of the last nine sessions.
What’s more, after mostly treading water for the last two months, a number of major indexes joined the Dow at 52-week highs Monday, including the S&P; 400 index of mid-size stocks, the Russell 2,000 small-stock index and the SOX index of semiconductor-related shares.
Markets also reached their highest levels in nearly one year in Germany, Britain, Mexico and Japan, among other nations. Germany’s DAX index rose 1.8%, Britain’s FTSE-100 index climbed 0.6%, Mexico’s IPC index gained 1.1% and Japan’s Nikkei-225 shot up 1.7%.
On Wall Street, more than two stocks rose for every one that fell on the New York Stock Exchange and on Nasdaq.
Despite the surge in long-term bond yields worldwide since mid-June, investors seem to be betting that rising corporate earnings in a stronger economy would offset the negative effects of higher interest rates.
“The fact that the [U.S.] stock market has held its own and moved sideways while the bond market has had a huge setback is telling,” said Bob Doll, president of Merrill Lynch Investment Managers in New York. “The ‘re-flation’ argument seems to be winning out over the deflation scenario, and now the stock market is saying, ‘Let’s get back to focusing on earnings,’ which are pretty good.”
U.S. bond yields pulled back modestly Monday, which may have helped to underpin stocks’ gains. The yield on the benchmark 10-year Treasury note -- which had rocketed as high as 4.56% last week -- eased Monday to 4.46% from 4.53% on Friday.
The yield has surged from a generational low of 3.11% in mid-June.
Some analysts fear that the August advance in equity prices, amid thin trading volume, could give way to renewed selling in September as more market players return.
Since 1950, September has on average been the weakest month of the year for stocks, according to the Stock Trader’s Almanac.
“The case can be made for investors to be involved in equities, but the easier money has been made,” said Jack Caffrey, equity strategist at J.P. Morgan Private Bank in New York.
The S&P; 500 is up 24.9% since March 11.
But Gustafson and other optimists say the bears who are betting against the market could help stocks climb the proverbial “wall of worry” -- meaning that, when the obstacles in front of the market are well known, stock prices often surprise everyone by climbing right over them.
Among Monday’s highlights:
* In the retail sector, upbeat sales guidance from Wal-Mart Stores and better-than-expected earnings from Lowe’s added to the optimistic mood.
Lowe’s jumped $3.06 to $51.96 after reporting a 28% jump in second-quarter net income, spurred by strong sales gains. Wal-Mart rose 82 cents to $58.92 after saying August revenue could be stronger than expected, boosted by clothing sales.
Among other retail chains, Sears rose $1.42 to $44.70, Target climbed 83 cents to $38.72, Toys R Us added 83 cents to $12.71 and Zale jumped $1.43 to $49.73.
* Old-line industrial names paced the Dow, including Caterpillar, which rose $2.08 to $73.04; Honeywell, which gained 78 cents to $29.33; and DuPont, which climbed $1.12 to $44.75.
Other blue-chip winners included General Electric, up $1.02 to $29.80, and 3M, up $1.68 to $144.34.
* In the tech sector, a broad rally in semiconductor shares lifted the SOX chip-stock index 5.2%. It is up 43% this year.
Internet stocks, many of which had sold off in recent weeks, also helped pace Nasdaq. Yahoo rose $1.41 to $31.29, EBay surged $5.19 to $108.26 and Amazon.com gained $2.92 to $43.02.
* Defense stocks rallied on merger news. DRS Technologies agreed to buy Integrated Defense Technologies for $17.50 a share. Integrated rose $2.06 to $17.06 while DRS fell $3.85 to $25.30.
Also, Precision Castparts agreed to buy SPS Technologies for about $43.80 a share. SPS leaped $9.65 to $43.95; Precision rose 91 cents to $33.68.
Among other defense issues, General Dynamics gained $3.73 to $83.65, Northrop Grumman rose $2.25 to $95.23, Lockheed Martin added $1.37 to $51.98 and United Defense Industries was up 72 cents to $28.35.
* Among stocks hitting 52-week highs were Whirlpool, up $1.31 to $69.73; Jacobs Engineering, up 30 cents to $46.30; and Krispy Kreme Doughnuts, up 47 cents to $49.37.
* On the downside, Altria Group lost 87 cents to $38.98 after a judge Friday ordered the company’s Philip Morris USA unit to post a $12-billion bond to cover a judgment won by Illinois smokers.
* The dollar rose to a one-month high against the euro on optimism about the U.S. economy. The euro fell to $1.115 in New York from $1.126 Friday.
* Crude oil prices eased, despite concerns about East Coast refinery shutdowns. Near-term futures in New York were off 16 cents to $30.89 a barrel.
