Investors’ hope for future is building
President-elect Barack Obama’s pledge to spend heavily on the nation’s infrastructure is giving Wall Street bulls some concrete reasons to buy stocks.
Infrastructure-related shares surged Monday, leading a broad market advance that lifted key indexes to their best levels in a month.
The Dow Jones industrial average jumped 298.76 points, or 3.5%, to 8,934.18, the fourth advance in five sessions and the highest close since Nov. 7.
The Standard & Poor’s 500 index rose 33.63 points, or 3.8%, to 909.70, the first close above 900 since Nov. 13.
Selling in the final hour trimmed the Dow’s rally from a gain of as much as 391 points. But some analysts were heartened by the market’s tone as buyers snapped up stocks of companies that could benefit from massive federal spending on roads, bridges and other projects.
“This was a rally with a reason behind it,” said Richard Sparks, equity analyst at Schaeffer’s Investment Research in Cincinnati.
Shares of U.S. Steel Corp., for example, jumped $7.03, or 24%, to $35.79.
Jacobs Engineering Group in Pasadena, a big provider of construction management services, surged $6.44, or 15%, to $48.87.
U.S.-traded shares of Mexican cement giant Cemex shot up $2.07, or 28%, to $9.40.
Obama gave a broad outline of his spending plans over the weekend, promising to make the largest investment in the nation’s infrastructure since President Eisenhower launched the interstate highway system in the 1950s.
Although the President-elect didn’t provide a specific price tag for the spending, it’s expected to be in the hundreds of billions of dollars -- money that could translate into higher sales and earnings for many construction-related companies in the next few years.
For the moment, it’s far from clear which companies would be the big winners under Obama’s program, or how soon.
“The government is going to spend a lot of money,” said Sam Burns, senior equity strategist at State Street Global Markets in Boston. “But there’s the practical reality -- how long before it takes effect? It could be quite a while.”
Still, for Wall Street bulls, it’s encouraging that some investors and speculators may be extending their time horizons well into 2009. That could lessen the potential for any rally to quickly give way to another wave of selling.
Some analysts noted that infrastructure issues had been rebounding faster than the broader market even before Monday’s surge.
Jacobs Engineering, for example, has rallied 86% since hitting a multiyear low of $26.27 on Nov. 20, compared with a 20.9% advance for the S&P; 500.
The market’s gains on Monday extended across all 10 major industry groups in the S&P; index, which also encouraged optimists. Winners topped losers by 2,480 to 688 on the New York Stock Exchange.
Financial stocks gained 6.8%, on average. Bank of America Corp. jumped $2.60, or 17%, to $17.84.
Energy stocks rose as Obama’s infrastructure plans helped boost prices of many commodities, including oil. Near-term crude futures in New York rose $2.90 to $43.71 a barrel after reaching a five-year low Friday.
The technology sector also attracted buyers. The Nasdaq composite index gained 62.43 points, or 4.1%, to 1,571.74.
With the S&P; 500 now up nearly 21% from its recent multiyear low, that constitutes a new bull market by one classic definition: a rebound of at least 20% from the low point.
Historically, the stock market has turned up well before the economy has bottomed in recessions.
But few analysts are willing to declare that the bear market has run its course. Many fear that hedge funds could be forced to dump more of their equity holdings between now and year’s end to meet investor redemptions.
“That’s always in the back of your mind,” said Michael Nasto, a trader at U.S. Global Investors in San Antonio.
Even so, he said, “I do think people are putting money to work. A lot of them are scared about missing the upturn.”
Among Monday’s highlights:
* General Motors rose 85 cents, or 21%, to $4.93 on hopes that Congress would agree to short-term financing to keep the company afloat.
* Overseas stock markets rallied sharply ahead of Wall Street, also benefiting in part from optimism about government economic-stimulus programs in the U.S. and abroad. The Hong Kong market jumped 8.7%, Japan rallied 5.2%, the German market advanced 7.6% and Mexican stocks climbed 5.4%.
* Treasury bond yields edged up as some investors sold bonds in favor of stocks. The 10-year T-note yield rose to 2.73%, up from 2.65% on Friday.
But in a sign that many investors are holding on tightly to their cash, the government sold new three-month Treasury bills at an annualized yield of just 0.005% -- the lowest yield since sales of the securities began in 1929.
Rock-bottom yields on short-term Treasuries show that “there’s still a tremendous amount of cash stuck at the front end [of the bond market], and it wants to stay there,” said Brian Edmonds, head of interest rates at Cantor Fitzgerald.
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