‘Goldilocks’ View Spurs Stock Buying
U.S. stocks on Thursday staged their biggest rally since the sell-off of recent weeks began, raising hopes that the market’s slide has run its course.
The Dow Jones industrial average surged 93.73 points, or 0.8%, to 11,211.05, building on a turnaround that began midday Wednesday.
Broader indexes posted their best gains since mid-April. Many foreign markets also shot up. Commodity-related stocks led the turnaround.
On Wall Street, investors jumped back into shares after the government’s revised estimate of first-quarter economic growth failed to ring any new alarm bells about inflation, analysts said. The report said the economy grew at a 5.3% annual pace in the quarter, although nearly all analysts believe growth has since slowed.
“This just adds fuel to the argument that we’re in a Goldilocks economy where we have good growth but don’t have inflation,” said Bart Barnett, head of trading at brokerage Morgan Keegan.
Analysts said stocks also were overdue for a snapback after the severe selling of recent weeks, particularly in small-company shares and emerging-market issues.
The Russell 2,000 small-stock index, which plunged 9% from May 6 to Wednesday, jumped 14.31 points, or 2%, to 725.58 on Thursday, for its biggest one-day gain since April 18.
Brazil’s main market index soared 5% and Russia’s RTS rallied 4%.
Stocks have slumped since mid-May, in part on concerns that the Federal Reserve might continue to raise interest rates to quash inflation. With rates also rising this year in Europe, Canada and China, investors have begun to worry that central banks will go too far and increase the risk of a global recession.
The market’s rebound Thursday was helped by comments by Fed Chairman Ben S. Bernanke.
“The stability of core inflation, even as many firms have faced substantial cost increases for energy products, has been enhanced by the fact that long-term inflation expectations appear to remain well contained,” the Fed chief said in a written statement to Congress’ Joint Economic Committee.
That revived hopes that the Fed’s quarter-point interest rate hike May 10 might be its last for a while.
“If you get a pause by the Fed and just a slowdown in the economy without a recession, then the market should go higher,” said Edward Hemmelgarn, president of Shaker Investments in Cleveland.
Rising stocks topped losers by more than 3 to 1 on the Big Board on Thursday. The Standard & Poor’s 500 index rose 14.31 points, or 1.1%, to 1,272.88.
The Nasdaq composite index shot up 29.07 points, or 1.3%, to 2,198.24. But that wasn’t enough to lift Nasdaq back into the black: It’s down 0.3% this year.
In commodities trading, oil prices rose, helped by renewed optimism about the economic outlook. Near-term crude futures in New York added $1.46 to $71.32 a barrel.
Prices of industrial and precious metals also were higher after tumbling in recent weeks. Near-term gold futures rose $11.40 to $648.40 an ounce.
Treasury bonds weakened as some investors sold bonds to buy stocks. The yield on the 10-year T-note edged up to 5.07% from 5.04% on Wednesday.
Among the day’s highlights:
* Energy stocks helped pace the rally in commodity-related issues. Exxon Mobil rose $1.42 to $61.52, Occidental Petroleum jumped $4 to $97.87 and Marathon Oil was up $2.36 to $75.71.
* In the metals sector, Inco surged $2.60 to $62.85, U.S. Steel soared $4.53 to $65 and Newmont Mining rose $2.55 to $52.08.
* General Motors climbed for the fourth session in the last five amid rising optimism about its turnaround program. The stock jumped $1.39 to $27.90, its highest level since October. Ford Motor was up 22 cents to $7.15.
* Wal-Mart Stores rose the most in six months after Banc of America Securities recommended the world’s largest retailer, in part on expectations for higher electronics sales. Wal-Mart gained $1.42 to $49.45.
* A strong reception for the initial public offering of credit card processor MasterCard helped underpin the broader market. MasterCard shares soared $7 to $46.
That offset some of the disappointment about the IPO of Internet telephony firm Vonage. Its shares plunged $2.15 on Wednesday, their first trading day, and slid $1.85 to $13 on Thursday.
* Biotech issues helped lead Nasdaq’s rebound. Biogen Idec rose $1.57 to $46.99, Amylin Pharmaceuticals surged $2.78 to $42.74 and Myriad Genetics gained 93 cents to $25.10.
* Nasdaq also got a lift from Internet-related issues after EBay and Yahoo announced a partnership for online searches and advertising. EBay leaped $3.68 to $33.88 and Yahoo tacked on $1.13 to $32.92.
Google advanced $1.74 to $382.99 and Amazon.com added 44 cents to $35.63.
* In foreign trading, most European stock indexes were up 1% to 2%. The Canadian market rallied 2% and the Mexican market rose 3.2%. But Japan’s Nikkei 225 index lost 1.3%.
