Dow Surges Past 9,000 on Upbeat Economic News
The Dow industrials closed above 9,000 on Wednesday for the first time since August as the stock market rally continued to gain steam.
A broad advance lifted the Dow 116.03 points, or 1.3%, to 9,038.98, while the tech-dominated Nasdaq composite index surged 31.09 points, or 1.9%, to 1,634.65, its highest close in more than a year.
The Standard & Poor’s 500 rose 1.5%, improving its gain to 23.2% from the market’s prewar low March 11.
Upbeat economic news helped drive the day’s gains, as did the continuing bond rally in the wake of Federal Reserve Chairman Alan Greenspan’s hint Tuesday that the central bank would cut interest rates further to ensure an economic recovery.
“There has been an important psychological shift in the market,” said strategist Philip Dow of Minneapolis brokerage RBC Dain Rauscher. “Many investors are saying, ‘I can’t afford to miss out anymore.’ ”
In the short run, clearing the Dow 9,000 hurdle may spur activity among sellers as well as buyers, creating a choppy market, said Brett Mitstifer, senior portfolio manager at Value Line Asset Management in New York.
“It may provide a level of resistance,” Mitstifer said. “Consolidation would be healthy, allowing some of the euphoria to cool down.”
Indeed, skeptics say the rally has been too extreme, with investors banking on a robust economy in the second half.
“The economy is not going to get better and sometime in the second half there is going to be a huge disappointment,” said William Fleckenstein of Seattle’s Fleckenstein Capital.
He said a herd mentality among money managers is driving the postwar frenzy even more than so-called short covering by those unwinding their bearish bets. “The quote-unquote ‘professional’ investors are acting like idiots,” Fleckenstein said.
Regardless, the bulls are in control. Airline, technology, biotech and financial stocks led the rally Wednesday. Overall, winners topped losers by more than 3 to 1 on the New York Stock Exchange, on active volume.
Another dive in Treasury bond yields helped to support stocks by making shares look better compared with paltry interest rates. The yield on the benchmark 10-year Treasury note slid to a 45-year low of 3.29%, from 3.33%, after Greenspan’s comments Tuesday.
In economic news, first-quarter productivity was revised to a gain of 1.9% from 1.6%, while the Institute for Supply Management’s index readings for May were stronger than expected, although its manufacturing number fell shy of indicating growth.
In light of the stock market’s recent gains, investors soon will insist on proof of robust corporate profits, said Chris Orndorff, head of equities at Payden & Rygel, an L.A. money manager.
“This rally puts a lot of pressure on the earnings announcements in July,” he said. “If companies don’t follow through with solid numbers and positive surprises, the market is vulnerable.”
One troubling sign to some analysts is that company executives and directors showed little confidence in stocks last month, based on their overall buying and selling of shares on the open market. Selling hit a two-year high at $3.3 billion, while buying slumped to $119 million, according to Thomson First Call.
Meanwhile, contrarian analysts note that sentiment among investment advisors has gotten heavily bullish. That could be a sign, they say, that the rally is at or near a peak, with little pent-up demand to fuel further gains. In the latest Investors Intelligence survey of newsletter editors, bullish sentiment rose to 56.5% from 53.8% last week, while bearish sentiment fell to an 11-year low of 20.7%.
In other highlights:
* Airline stocks rallied after Goldman Sachs said losses may be slowing. AMR jumped $1.58 to $8.60 and Northwest Airlines surged $1.22 to $10.44.
* In the tech sector, Adobe Systems gained $2.18 to $37.11, Broadcom added $1.54 to $26.09 and Electronic Data Systems soared $2.71 to $23.53.
Chip giant Intel rose 28 cents to $21.38 in advance of its mid-quarter business update for investors, which executives will deliver today.
* Biotech winners included Genentech, up $4.23 to $70.48, and Biogen, up $2.22 to $45.99.
* Among financial names, Wells Fargo climbed 97 cents to $50.24, Merrill Lynch rose $1.25 to $45.65, Countrywide Financial gained $2.32 to $76.81.
* Walt Disney rallied 97 cents to $20.73. CEO Michael Eisner said Disney has no plans to sell its radio assets, and a brokerage raised its stock price target.
* DaimlerChrysler’s U.S.-traded shares slipped 90 cents to $30.75 after the company warned of a likely profit shortfall stemming from sales incentives.
Market Roundup, C6-7
