Stocks close out month strongly
Wall Street capped a strong January with another rally Wednesday, cheering investors who trust in the “January barometer”: the market’s historical tendency to rise in years when the first month is up, and fall in years when it’s down.
The Federal Reserve provided much of the fuel for the day’s gains after it held its key interest rate steady while sounding upbeat about the economy.
The central bank’s language reinforced other government reports that have pointed to economic resilience in recent months. Those reports have brought investors back to shares of industrial companies and others that could benefit from a prolonged expansion.
Big gains in manufacturing leaders Caterpillar and Boeing helped push the Dow Jones industrials up 98.38 points, or 0.8%, to 12,621.69 on Wednesday.
That left the Dow just below its all-time closing high of 12,621.77 set a week earlier.
Some key indexes of smaller stocks edged up to record highs. The Russell 2,000 index, for example, added 2.37 points, or 0.3%, to 800.34, its first-ever finish above 800.
For the month, nearly all major U.S. indexes posted gains. The Dow was up 1.3% -- its seventh straight monthly advance.
“At this point I don’t see any reason to get off the train,” Robert Morris, chief investment officer at money management firm Lord, Abbett & Co. in Jersey City, N.J., said of the market rally.
The outlooks for corporate earnings, inflation and interest rates all are positive for stock investors in 2007, he said.
The market had been treading water Wednesday until the Fed, after its first policy meeting of the year, kept its benchmark rate at 5.25% and said the economy “seems likely to expand at a moderate pace over coming quarters.”
Although the central bank also warned that it still might raise interest rates again if inflation pressures increase, many investors continue to believe that the economy is working its way through a “soft landing,” meaning growth that is healthy enough to keep earnings rising but down from levels that might stoke inflation.
“The stock market likes a soft landing, and I think that’s what we’re having,” said Peter Hooper, chief economist at Deutsche Bank Securities in New York.
A prolonged economic expansion could boost investors’ perceptions of heavy-industry companies and others whose fortunes would be threatened by a serious slowdown or an outright recession.
Some of those shares have been red-hot in recent weeks. Caterpillar, which makes earthmovers and other industrial equipment, rose $1.19 to $64.07 on Wednesday and is up 10% since Jan. 22, when the stock hit a 52-week low.
Other industrial stocks leading the day’s rally included U.S. Steel, up $3.22 to a record $83.49, and railroad Union Pacific, up $4.02 to a record $101.
In the Dow index, Boeing rocketed $3.56 to $89.56 after reporting that fourth-quarter profit beat analysts’ estimates.
Winners outnumbered losers by 2 to 1 on the New York Stock Exchange in active trading.
Investors also may have been relieved Wednesday that the Fed didn’t sound more concerned about inflation, given the government’s report on fourth-quarter economic growth.
Real gross domestic product rose a hefty 3.5%, annualized, in the period, buoyed by robust consumer spending.
That may have helped lift many retail shares. Nordstrom gained $1.18 to a record $55.71; Kohl’s rose $1.65 to $70.91.
But the recent rebound in oil prices could begin to weigh on consumers. Near-term crude futures in New York closed at $58.14 a barrel Wednesday, up $1.17. The price has risen from $50.48 a barrel at mid-month, boosted partly by expectations of production cuts by the Organization of the Petroleum Exporting Countries.
Hooper and many other analysts expect U.S. economic growth to weaken this year to the 2%-to-2.5% range, hurt by the housing slowdown and as the fourth-quarter kick from lower energy costs diminishes.
The good news is that slower growth should keep the Fed on hold with rates, Hooper said.
In the Treasury bond market, many investors had been optimistic that the Fed would begin cutting rates this year. But those hopes have evaporated since early December, and investors have been dumping bonds, driving yields higher.
On Wednesday, however, the Fed’s words appeared to soothe the bond market. The yield on the 10-year Treasury note, a bellwether for mortgage rates, slid to 4.81% from 4.87% on Tuesday. The T-note hit a five-month high of 4.89% on Monday.
Among broad stock market indexes, the Standard & Poor’s 500 was up 1.4% in January after rising 9.42 points, or 0.7%, to 1,438.24 on Wednesday.
The technology-dominated Nasdaq composite gained 2% for the month. It was up 15.29 points, or 0.6%, to 2,463.93 for the day.
More often than not, the market’s direction in January has set the tone for the year, according to the Stock Trader’s Almanac, which tracks historical trends.
Since 1950, the S&P; 500 index’s price change in January, up or down, has correctly signaled whether it would be up or down for the year 79% of the time.
Some analysts say that record reflects investors’ collective ability to bet correctly in the first month on how the economy will fare the rest of the year.
But the January barometer has had some big flops in this decade. In January 2001 the S&P; 500 jumped 3.5%, but it lost 13% for the year. In 2005 the index gained 3% for the year despite sinking 2.5% in the first month.
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Mostly higher
Many stock markets worldwide kept up their winning ways in January after last year’s rally.
*--* Jan. pctg. Country/index change* Mexico/IPC +4.2% Germany/DAX +2.9 India/Sensex +2.2 U.S./Nasdaq compos. +2.0 U.S./Russell 2,000 +1.6 U.S./S&P; 500 +1.4 U.S./Dow industrials +1.3 Japan/Nikkei-225 +0.9 Britain/FTSE-100 -0.3 Russia/RTS -4.1
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*Foreign index changes are measured in local currencies.
Source: Bloomberg News
