Bullish Mood Sends Dow Up 0.9%
Wall Street’s bulls declined to take a holiday Monday, instead pushing major stock indexes to their highest levels in more than a year.
Though trading was light, with banks and the bond market closed in observance of Columbus Day, those who came to work were mostly in a buying mood: The Dow Jones industrial average gained 89.70 points, or 0.9%, to 9,764.38, the best closing mark since June 2002.
Stoked by upbeat reports on the economy, the market has been on fire again in recent weeks after a brief sell-off in late September. The Dow has jumped 5.3% just since Sept. 30, and is up 17.1% year to date.
The technology-dominated Nasdaq composite index, which rose 18.22 points, or nearly 1%, to 1,933.53 on Monday -- the highest close since January 2002 -- is up 8.2% since Sept. 30 and has soared nearly 45% this year.
Many bullish investors are betting on healthy third-quarter corporate earnings reports to lure more buyers to equities. Profit-reporting season kicks off in earnest this week.
There also are hints that a huge group of potential investors -- people who have more than $3.1 trillion in bank savings accounts -- may have become fed up with near-zero returns and are moving some of that cash into stocks.
The total amount in short-term savings accounts, excluding cash tied up in certificates of deposit, has soared by $1.3 trillion since the end of 2000, according to Federal Reserve data.
Some economists believe that the popularity of those accounts reflects many Americans’ desire for total safety and immediate access to their money. A chunk of the savings gain is believed to have come from home equity “cashouts” -- money taken out of homes via mortgage refinancings, said Edward Yardeni, chief investment strategist at Prudential Equity Group in New York.
But with yields on savings accounts below 1% at most banks, while the stock market streaks higher, some savers may have begun pulling cash out of those safe accounts to invest, Yardeni said.
The bank savings total hit a record high of $3.17 trillion as of Aug. 18, Fed data show. It had been rising since March even as the stock market rallied.
But by Sept. 29, the savings total had dropped to $3.13 trillion, down $46 billion from the August peak, seasonally adjusted.
The decline could yet turn out to be temporary. What’s more, the government can’t measure where money goes when it exits the banks. Instead of investing, some Americans may be spending that cash.
But either way, “I think it’s a sign of confidence” in the economy, Yardeni said.
John Lonski, economist at Moody’s Investors Service in New York, said that a continuing drop in the bank savings total would hearten the Federal Reserve because “this is precisely how monetary policy is supposed to work.”
By lowering its benchmark short-term interest rate to a generational low of 1% in June, the Fed was attempting to push more capital out of safe accounts and into the economy, either through spending or investing, Lonski said.
“We may have reached the point where households decide they have more cash on hand than they want or need,” he said.
Yardeni said old-fashioned greed also may be a factor.
“In America,” he said, “one of the most painful emotions is the feeling that your neighbor is getting rich and you’re not.”
The stock market may not be the hot topic that it was at the bull-market peak in March 2000, but many investors are enjoying spectacular gains in equities this year, at least on paper.
And since spring, one of the rally’s most impressive features has been its breadth, meaning that investors have been buying a wide array of stocks rather than concentrating on a handful of industries.
That has continued over the last two weeks.
On Monday, more than two stocks rose for every one that lost ground. Indexes of smaller stocks performed better than the blue-chip Dow. The Russell 2,000 small-stock index, for example, gained 8.51 points, or 1.6%, to 527.57, its highest close since September 2000.
One measure of the rally’s extensiveness is that a Value Line index of 1,700 stocks is hitting all-time highs. That index jumped 1.3% to 1,420.78 on Monday, and is up 37% year to date.
Most market indexes are capitalization-weighted, meaning they are skewed by the performance of their biggest stocks by market value. The Value Line index, by contrast, gives every stock the same weighting.
The upshot is that when the index is soaring, it “suggests that the average stock is doing very well,” said Steve Todd, editor of the Todd Market Forecast in Mission Viejo.
Like many other analysts, Todd said he has been anticipating that profit takers could slam stocks down in a hurry.
But the late-September sell-off ran its course in about two weeks, and the declines in major indexes failed to reach the 10% threshold that would qualify as an official “correction” in Wall Street lingo.
“We keep thinking we will get a pullback, which doesn’t want to happen so far,” Todd said.
Among Monday’s highlights:
* Optimism about corporate earnings growth may have been buoyed by brokerage Goldman Sachs, which raised its estimate of third-quarter real gross domestic product growth to 6.5% from 5%.
Industrial stocks that could benefit from a stronger economy led the day’s rally. Machinery giant Caterpillar gained $1.15 to $76.90, mining firm Inco jumped $1.31 to $31.81 and International Paper was up 82 cents to $39.14.
* Financial stocks were strong. Many financial companies are expected to report healthy third-quarter earnings. Citigroup rose $1.03 to $48.93, Merrill Lynch added $1.35 to $58.89 and East West Bancorp surged $1.53 to a record $47.99.
* In the tech sector, Motorola closed up 8 cents to $13.87 after soaring to $14.40, after its report that third-quarter earnings beat Wall Street’s estimates. The stock is up 60% this year.
* On the downside, EBay slid $1.47 to $58.99 after brokerage Smith Barney recommended selling the Internet auctioneer’s stock.
Analyst Lanny Baker said results from EBay’s car-sales unit could begin to disappoint investors, and that the stock could slide to about $48.
Baker’s sell rating is the only such rating on the stock, based on 18 brokerages that follow the company, according to data-tracker Thomson First Call. Eleven of the brokerages rate the stock a “buy” and six rate it a “hold.”
Market Roundup, C11-12
