Dow Rallies to 2-Month High
Blue-chip stock indexes rallied to two-month highs Thursday as some investors took an optimistic view of the economy and interest rates, ahead of today’s July employment report and the Federal Reserve’s meeting Tuesday.
With the nation’s retailers reporting a generally positive July, investors were reassured that consumer spending wasn’t falling off a cliff.
At the same time, the Institute for Supply Management’s index of service-sector activity in July came in below expectations, more evidence that economic growth was moderating.
“Both reports bode well for a soft-landing scenario” that would maintain decent economic growth while keeping inflation in check, said Peter Cardillo, chief strategist at S.W. Bach & Co.
That, in turn, could give the Fed more confidence about halting its two-year-long credit-tightening campaign.
The Dow Jones industrial average rose 42.66 points, or 0.4%, to 11,242.59, its highest closing level since June 2.
The Standard & Poor’s 500 index inched up 1.72 points, or 0.1%, to 1,280.27, also the highest since June 2.
Winners topped losers by about 3 to 2 on the New York Stock Exchange and Nasdaq.
The Nasdaq composite index rallied 13.53 points, or 0.6%, to 2,092.34, its highest since last Friday.
The Institute for Supply Management’s services index fell to 54.8 in July from 57.0 in June. Although any reading above 50 indicates growth, last month’s reading was weaker than expected.
Separately, the Commerce Department said new orders to U.S. factories rose 1.2% in June. Excluding the transportation sector, orders rose a scant 0.1%.
Today’s government report on July employment trends may be the most important evidence the Fed weighs in deciding whether to raise interest rates further or go on hold, analysts said.
Treasury bond traders have been pushing long-term yields lower for the last month, signaling that they expect the Fed to pause. On Thursday, the 10-year Treasury note yield held at a seven-week low of 4.96%.
On Wall Street, neither the bond market nor the stock market was rattled by interest rate hikes by the European Central Bank and the Bank of England.
In other trading, near-term crude oil futures slipped 35 cents to $75.46 a barrel as Tropical Storm Chris weakened, reducing the threat to Gulf of Mexico energy facilities.
Among the day’s market highlights:
* Retail stocks were mostly higher on July sales reports. Nordstrom jumped $2.26 to $35.62, Chico’s FAS gained $1.85 to $23.59 and Abercrombie & Fitch surged $3.27 to $55.88.
* Shares of homebuilders rebounded, posting their biggest one-day gain since April. KB Home rose $2.69 to $45.74, Pulte Homes added $1.55 to $30.20 and Centex jumped $2.01 to $49.78.
* Stocks gaining on earnings reports included OfficeMax, up $5.10 to $44.42; real estate investment trust Mack-Cali, up $2.18 to $50.42; financial research firm Morningstar, up $1.25 to $38.74; and drugstore chain CVS, up 71 cents to $33.90.
* On the down side, Medtronic plunged $6.61 to $44.32 after its profit report. Concerns about slowing sales pushed Starbucks down $2.66 to $30.64.
* Educational toymaker Leapfrog Enterprises slumped $1.53 to $8.02, a record low, after the company said its second-quarter loss widened. Citigroup cut its rating on the stock to “sell” from “hold.” The stock has tumbled 31% year to date.
* Transportation stocks recouped some of their steep recent losses. Continental Airlines surged $2.02 to $27.50, rail giant CSX rose $2.07 to $62.95 and FedEx was up $2.03 to $105.35.
