Stocks Kick Off New Quarter With a Big Rally
So far, so good.
Wall Street started the fourth quarter with a bang as U.S. stocks staged their broadest rally in 2 1/2 years Wednesday, lifting the Dow industrials 194 points.
A report showing that U.S. manufacturing grew for the third straight month in September helped fuel optimism for the economy, and declines in six of the previous eight trading sessions left investors smelling bargains in the stock market, analysts said.
“People are reshuffling into stocks, and why not?” said Louis Navellier, manager of the Navellier Aggressive Growth fund. The economy, he said, is “clearly” rebounding, despite recent data suggesting a loss of momentum.
The Dow Jones industrial average surged 194.14 points, or 2.1%, to 9,469.20; the broader Standard & Poor’s 500 index gained 22.25 points, or 2.2%, to 1,018.22; and the technology-heavy Nasdaq composite rose 45.31 points, or 2.5%, to 1,832.25.
Winners swamped losers by nearly 5 to 1 on the New York Stock Exchange -- the widest winning margin on the Big Board since May 2001 -- and by 2 to 1 on Nasdaq. Trading was active.
The start of a new quarter clears the slate for big investors who focus intently on short-term results, analysts said.
They also said investors were cheered by the Institute for Supply Management’s report that its national index of manufacturing activity dipped to 53.7 in September from 54.7 in August.
Though the index fell, any reading above 50 indicates growth. So the figure was a relief to investors who feared that manufacturing might have begun to contract again, following other weak economic data in recent weeks.
For a change, stock and bond markets rallied together Wednesday. The yield on the benchmark 10-year T-note eased to a two-month low of 3.93% from 3.94% on Tuesday.
The T-note yield has dropped from a one-year high of 4.60% in early September. That is healthy for the stock market because it means bonds provide less competition for equities, said Reed Bender, manager of the Bender Growth stock fund in Pasadena.
Expectations of strong corporate earnings growth also are underpinning stocks, analysts said. Profits were expected to climb in the third quarter for the sixth consecutive quarter on a year-over-year basis, and gross domestic product growth could handily top economists’ consensus forecast of 4.5%, Navellier said.
Many market bulls point to a mountain of cash on the sidelines. Low-yielding money market funds hold $2.2 trillion, a stash that could serve as rally fuel if a fraction of that is shifted into equities, Navellier said.
Recent “short” selling helped supercharge Wednesday’s equity rally, Bender said.
He said short sellers -- who bet on declines by selling borrowed shares with the aim of buying them back more cheaply and pocketing the spread -- had been active Tuesday, emboldened as Nasdaq fell 2.1% and deepened Wall Street’s September slump. From their recent peaks Sept. 18 through Tuesday, Nasdaq lost 6.4% and the Dow 4%.
But as indexes rallied Wednesday, some short sellers scurried to buy stocks to close out their bets, Bender said.
Investors shrugged off a down day for the dollar, which slid to 110.64 yen from Tuesday’s close of 111.42 yen. The euro climbed to $1.172 from $1.165.
Markets worldwide rallied in tune with Wall Street. Key indexes rose 3.6% in Brazil, 2.2% in Germany, 1.9% in Britain, 1.8% in France and 1.4% in Japan.
In the day’s other highlights:
* Clear Channel Communications rallied $2.01 to $40.31 after the broadcasting and billboard company reaffirmed third-quarter earnings guidance.
* Manufacturer and Dow member 3M climbed $1.83 to $70.90 after reaffirming its guidance late Tuesday, a move that also bolstered investor confidence in the economy.
* Eli Lilly surged $3.61 to $63.01 after signaling that Food and Drug Administration approval for its depression drug Cymbalta could be coming soon.
* Among industrial stocks, Caterpillar gained $2.50 to $71.34; Boeing added $1.01 to $35.34; and United Technologies climbed $2.60 to $79.88.
* Tech winners included Intel, up $1.11 to $28.63; Microsoft, up 72 cents to $28.52; Siebel Systems, up 64 cents to $10.40.
* One holdout was NYSE trading specialist firm LaBranche, which slumped $1.23 to $13.37 after warning that its third-quarter profit would be lower than expected.
