Stocks Rally as Investors Renew Hopes for an Economic Recovery
Stocks rose Thursday as investors bet on an economic recovery happening later this year and pushed up tobacco shares as brokerages gave bullish forecasts a day after the industry won a major court victory.
Hopes that corporate earnings will rebound in months ahead also fueled bullish sentiment after Federal Reserve Chairman Alan Greenspan’s guardedly upbeat remarks on the U.S. economy Wednesday.
The Dow Jones industrial average gained 77.59 points, or 0.9%, to 8,594.02. The Standard & Poor’s 500 index rose 8.45 points, or 0.9%, to 931.87 and the technology-laden Nasdaq composite index gained 17.68 points, or 1.2%, to 1,507.55.
Winners beat losers by 2 to 1 on the New York Stock Exchange and by 3 to 2 on Nasdaq. Trading was active.
Adding to Wall Street’s optimism was a report from a group of economists who forecast the economy will strengthen considerably in coming months.
They forecast growth at a fast enough pace to cut the jobless rate a few notches by the end of next year.
Investors shrugged off a government report that showed more workers applied for initial unemployment benefits last week. Jobless claims climbed to 428,000 from 421,000 the previous week.
Altria, parent of Philip Morris USA, was the blue-chip Dow’s biggest percentage gainer, rising $2.75, or 7.2%, to $41.05, while rival R.J. Reynolds Tobacco added $1.03 to $34.31.
Credit Suisse First Boston raised its rating on Altria’s stock and Goldman Sachs lifted its rating on the tobacco sector. The changes came a day after a Florida appeals court reversed a landmark $145-billion judgment against major U.S. cigarette makers, a resounding victory for the tobacco industry.
Homebuilders, including Centex and Pulte Homes surged after Freddie Mac, the No. 2 U.S. buyer of mortgages, said 30-year mortgage rates are the lowest in at least three decades. Centex, the largest U.S. homebuilder, rose $4.23 to $74.30. Rival Pulte advanced $2.80 to $63, and KB Home climbed $4.15 to $55.36. All were record highs.
The average rate on a 30-year fixed-rate mortgage dropped to 5.34% this week from 5.45% last week. That’s the lowest since Freddie Mac began keeping records in 1971.
Freddie Mac fell 70 cents to $59.35. Freddie Mac said its loan portfolio fell by an annualized rate of 1.2% in April after rising 17.1% in March as declines in its mortgage-backed bonds prompted banks to sell it fewer loans.
Bond yields fell again, giving added impetus to stock buying. The yield on the benchmark 10-year Treasury note fell to a new generational low of 3.32%, down from Wednesday’s close of 3.40%.
The stock market “is undervalued relative to interest rates,” said Edward Hemmelgarn, who manages about $1 billion as president of Shaker Investments Inc. in Cleveland. “You can buy the best names at some pretty great prices and earnings have been growing.”
The dollar, meanwhile, dipped against the euro and the yen. And in commodity trading in New York, gold fell $3.90 to $368.10 an ounce and oil slipped 18 cents to $28.85 a barrel.
In other highlights
* JetBlue Airways climbed $1.51 to $33.59. Strong growth prospects and a higher 2003-2004 profit outlook prompted UBS Warburg analyst Sam Buttrick to upgrade the discount airline to “neutral” from “reduce.”
* Utility Dynegy gained 31 cents to $4.88 after Fitch Ratings removed the company from its rating watch list, citing lower “near-term default risk” on its debt.
* Sirius Satellite Radio, the No. 2 satellite-radio broadcaster, rose 17 cents to $1.24 and was the most active stock on Nasdaq. Merrill Lynch upgraded the stock to “neutral” from “sell.”
* Foot Locker, the top U.S. athletic shoe retailer, rose nearly 10%, or $1.12, to $12.49 after it forecast that its quarterly results could top analysts’ estimates.
* An upbeat forecast from software company Synopsys sent its shares up more than 15% and helped lift technology shares. Synopsys shares jumped $8.02 to $58.92.
Market Roundup, C6-7
