Rally Solidifies as Dow Closes at 8-Month High
Wall Street seems determined to turn a turkey into a bull.
The stock market built on its powerful November rally on Wednesday, putting more investors on track to earn at least respectable returns on their shareholdings this year.
The blue-chip Standard & Poor’s 500 index rose 4.38 points, or 0.4%, to 1,265.61, its highest close since June 2001.
The Dow Jones industrial average gained 44.66 points, or 0.4%, to 10,916.09, an eight-month high. The Dow reached a four-year high before pulling back in the final hour of trading.
The day’s advance left the S&P; -- a staple of many investors’ portfolios via mutual funds that track the index -- up 4.4% year to date, and up 6.2% including dividend income. Just six weeks ago the index was in the red for the year.
The market’s turnaround this month, after struggling for most of the year, has been spurred in part by declines in oil prices and by hopes that the Federal Reserve might be nearing the end of its credit-tightening campaign, analysts say.
Now, the calendar is helping to boost stocks: Because professional fund managers and traders know that the market typically rallies in December, many have been buying for fear of losing out on more gains.
“The market starts to move and because it’s starting to move, people jump into it,” said Doug Sandler, a stock strategist at brokerage Wachovia Securities in Richmond, Va. “There’s a feeling that, ‘You’ve got to have a man on base.’ ”
The months of November, December and January historically have constituted the best three-month stretch of the year for Wall Street. Many analysts believe that’s because investors often grow optimistic about prospects for the economy in the new year, and so turn to stocks as a way to cash in.
December has been particularly hot for blue-chip shares: Since 1950, the S&P; 500 index has risen in December 42 of 55 years, or 76% of the time. That is the highest winning percentage of any month of the year, according to the Stock Trader’s Almanac, a guide to market history.
Beyond the calendar, market bulls contend there are good fundamental reasons to stick with stocks: The economy has continued to show strength, while energy prices and long-term Treasury bond yields have pulled back from their recent peaks.
On Tuesday, the market got a lift after the Federal Reserve released the minutes of its Nov. 1 meeting. The report provided hints that central bank policymakers might be preparing to stop raising interest rates after a few more increases. The Fed has raised its key short-term rate from 1% to the current 4% over the last 18 months.
Steve Todd, editor of the Todd Market Forecast newsletter in Crestline, said he was a bit nervous that the market had risen so quickly. The S&P; 500 has shot up 4.9% this month, greater than any of its monthly gains since December 2003.
“On the other hand, we have to remember that this is the strongest quarter of the year [historically] and there is a ton of cash on the sidelines” as many investors have shunned the market this year, Todd said. “That, combined with dropping energy prices and a Fed that looks to be winding down its tightening sequence suggests still higher stock prices.”
Corporate earnings growth also is supporting the market, some analysts say: Standard & Poor’s estimates that operating profit of the S&P; 500 companies rose 11.5% in the third quarter, and will rise 14.2% in the current quarter and 11.5% in 2006.
One major concern for the economy, however, has been that consumers might be tapped out financially after maintaining a brisk spending pace for the last few years.
On Wednesday, a closely watched survey of consumer confidence helped to allay those worries somewhat, ahead of the first big holiday shopping weekend of the year: The University of Michigan said its consumer sentiment index rose to 81.6 for November from 74.2 in October.
Lower energy prices are making consumers, and Wall Street, feel better. Near-term oil futures contracts in New York ended at $58.71 a barrel on Wednesday, off 13 cents for the day. The price has fallen from a record high of $69.81 on Aug. 30, after Hurricane Katrina devastated the Gulf Coast and hammered oil and natural gas operations.
The big question is whether the stock market can maintain its momentum into 2006. Sam Stovall, investment strategist at Standard & Poor’s, said that might depend on whether energy prices stay down, and whether the Fed in fact is nearly finished tightening credit.
Among Wednesday’s market highlights:
* The technology-heavy Nasdaq composite hit its highest level in 4 1/2 years, rising 6.42 points, or 0.3%, to 2,259.98.
* Winners topped losers by 3 to 2 on the New York Stock Exchange.
* Treasury bond yields rose after sliding on Tuesday. The 10-year T-note yield ended at 4.47%, up from 4.43% on Tuesday, but down from 4.66% on Nov. 4.
* Many foreign stock markets hit multiyear or record highs, continuing to far outpace U.S. shares this year. South Korea’s main index surged 3% to a record. It is up more than 43% this year in local currency terms. Brazil’s market also hit a record, and the German and British markets ended at three-year highs.
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Global gains
Many foreign stock markets have performed better than the U.S. market this year. A sampling:
*--* 2005 Gain in Market/index gain dollars* South Korea composite +43.5% +43.2% India/Sensex +30.8% +24.2% Mexico/IPC +29.4% +36.0% Japan/Nikkei +28.0% +10.4% Germany/DAX +22.1% +6.3% Brazil/Bovespa +21.9% +44.7% France/CAC +20.6% +5.1% Canada/ S&P-TSX; +18.1% +21.1% Britain/FTSE +14.9% +3.2% U.S./S&P; 500 +4.4% +4.4%
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* Market return to U.S. investors, adjusted for changes in the dollar’s valueLos Angeles Times
Source: Bloomberg News
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