Upbeat Data Spur Blue-Chip Advance
Blue-chip stock indexes Monday scored their biggest one-day advance since April 2 as investors continued to pour into the market, encouraged by upbeat economic data.
Even as stocks rally, a key measure of money in short-term accounts also is rising, reaching nearly $6.3 trillion, data show. The buildup of cash suggests there still is plenty of fuel to help power the market higher, some analysts say.
The Dow Jones industrial average jumped 201.84 points, or 2.2%, to 9,318.96, extending the winning streak that has lifted the index nearly 24% since March 11. All 30 stocks gained ground, and it was the Dow’s biggest gain since it rose 215 points, or 2.7%, on April 2 as the U.S. neared victory in Iraq.
The broader Standard & Poor’s 500 index soared 22.13 points, or 2.2%, to 1,010.74, closing above 1,000 for the first time in almost a year. The tech-heavy Nasdaq composite jumped 40.09 points, or 2.5%, to 1,666.58.
Wall Street pros say the rally is being fed in large part by investors who are fearful of missing a further advance.
“There’s a lot of money on the sidelines, and now people are jumping in and investing,” said Steve Colton, manager of the Phoenix-Oakhurst Growth & Income fund in Scotts Valley, Calif. “Money is chasing stocks, and that feeds on itself.”
Winners outnumbered losers by about 5 to 2 on the New York Stock Exchange and by nearly 2 to 1 on Nasdaq, though trading volume dipped from recent peaks.
Investors cheered a Federal Reserve report Monday showing manufacturing activity in New York state rising far more than expected early this month. If that heralds a turn in manufacturing nationwide, it could provide solid evidence that the economy is reviving, analysts said.
Professional investors sparked the stock market’s turn in mid-March, betting on a fast end to the Iraq war. Now, more individual investors appear to be joining in the rally.
U.S. equity funds have taken in a net $7.4 billion in the last two weeks, the strongest inflow since mid-April, according to TrimTabs.com Investment Research in Santa Rosa, Calif.
Still, many investors and savers continue to hang back. That is reflected in the continuing rise in the Fed’s measure of so-called zero-maturity money, primarily comprised of bank savings accounts and money market fund assets.
That sum has risen to a record of almost $6.3 trillion, Fed data show. Bank savings accounts alone account for $3 trillion of the total, and have taken in $117 billion since mid-March.
Some market bulls point to that cash mountain as a source of fuel for stocks in coming months, especially if the Fed cuts short-term interest rates again when it meets next week, further lowering cash-account yields that already are below 1% in many cases.
Yet so far, relatively few dollars have left cash accounts. Money fund assets have dropped just 5% this year, and still total almost $2.2 trillion, according to the Investment Company Institute, the fund industry’s main trade group.
Many skittish investors who are husbanding cash in safe accounts are putting safety of principal ahead of all other goals, analysts say, and those savers aren’t likely to shift that money into stocks regardless of the market’s gains.
“After significant losses in the bear market and the corporate accounting scandals, a lot of people threw their hands up and said, ‘I don’t care what it yields as long as it preserves my capital,’ ” said Greg McBride, senior financial analyst at BankRate.com in North Palm Beach, Fla. “People who have fled may ultimately get back into stocks, but at what cost? They’ve already missed more than a 20% gain since March.”
Some analysts say fresh cash coming into the market could be swamped by corporate bearishness, as demonstrated by insiders unloading personal holdings and companies stampeding to sell new shares at current prices.
TrimTabs.com said that new stock sales -- a combination of secondary and initial public offerings -- soared to $25 billion in May and $10 billion in the first two weeks of June, well above the pace in the year’s first four months. Net insider sales by individual directors and executives also have surged in recent weeks, the research firm said.
“What corporations and insiders are saying is, ‘We want to keep our cash and you can have our shares,’ ” said Michael Alexander, TrimTabs’ director of business development.
Historically, corporate stock-sale activity has been a good indicator of market tops and bottoms, he said, adding: “Who knows better what the economy is going to do than people sitting in big corporations?”
Market optimists, however, argue that companies may be underestimating the stock market’s ability to keep rising, if the economy is indeed turning and if the Fed keeps interest rates low for an extended period.
In other highlights Monday:
* Treasury bond yields rose as stocks gained. Yields had reached generational lows Friday. The yield on the benchmark 10-year T-note climbed to 3.17% from 3.11%.
* Among Dow stocks, J.P. Morgan Chase gained $1.25 to $35.95; Caterpillar climbed $1.84 to a new 52-week high of $57.89; and McDonald’s rose 74 cents to $22.20, bringing its gain since March 11 to 78%.
* Analyst upgrades boosted Yahoo, up $1.94 to $30.66; Nextel Communications, up $1.38 to $15.85; and auto parts retailer Pep Boys, up $1.76 to $13.76.
* Cell Therapeutics jumped $1.73 to $14.75 after saying its cancer drug Xyotax will get quicker regulatory review, and Nektar Therapeutics rose $1.96 to $13.44 after saying its inhaled insulin product Exubera helped patients in late trials. The Nasdaq biotech index has rocketed 60.2% since March 11.
* European markets got a lift from Wall Street’s strong opening. The German market rose 3% and the French market gained 2.1%.
Market Roundup, C8-9
