Renewed optimism extends Dow surge
Wall Street shot higher Thursday, extending its rally another day as tumbling energy prices bolstered an already upbeat mood that followed stronger-than-expected quarterly reports from big names such as JPMorgan Chase and United Technologies.
The Dow Jones industrial average rose more than 200 points, bringing its two-day advance to more than 480.
Investors got a double dose of good news after weeks of angst about the economy. Light, sweet crude fell $5.31 to $129.29 a barrel; oil has dropped more than $15 in just the last three sessions.
And early Thursday, three components of the Dow industrials -- JPMorgan Chase, United Technologies and Coca-Cola -- issued comments that generally indicated that their businesses are holding up despite sometimes difficult economic conditions.
The reports let investors put aside some of their worst fears about the economy. Still, Wall Street has had some up periods in the last few months as optimism grew, only to fall back as worries about the financial sector and the economy have welled back up.
“The sentiment has just been so negative that even a whiff of positive news is driving the markets,” said Kevin Dorwin, principal at wealth management firm Bingham, Osborn & Scarborough in San Francisco.
“Oil is the key factor right now because inflation has been on the top of investors’ minds and a reduction in the price of oil signals that perhaps inflation will not get out of hand. That’s very positive for both the stock and bond markets,” he said.
Beyond oil, natural gas prices also fell sharply Thursday after the Energy Department said domestic stockpiles rose last week, signaling a drop in demand. Although levels remain below those of recent years, natural gas fell 86.1 cents to settle at $10.537 per 1,000 cubic feet.
A sustained drop in energy costs would be welcome news for nearly all parts of the economy. Consumers have been hard-pressed by higher fuel and food costs. Wall Street is worried they will pare their spending on discretionary items so they can pay for higher-priced necessities. A pullback could be troublesome as consumer spending accounts for more than two-thirds of U.S. economic activity.
But the declines in energy and profit reports from marquee names left investors in an acquisitive mood again Thursday. The Dow rose 207.38 points, or 1.9%, to 11,446.66. The Dow on Wednesday surged 276 points. The 4.4% advance over two days was the Dow’s best two-day percentage gain since October 2002.
Broader stock indicators also rose Thursday. The Standard & Poor’s 500 index advanced 14.96 points, or 1.2%, to 1,260.32, and the Nasdaq composite index rose 27.45 points, or 1.2%, to 2,312.30.
Bond prices showed steep declines as investors turned away from the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 3.99% from 3.94% late Wednesday.
The dollar was mixed against other major currencies; the euro gained 0.001 to $1.582. Gold prices rose $8.20 to $970 on the New York Mercantile Exchange.
Wall Street also appeared placated by economic figures. A Commerce Department report showed construction of homes and apartments rose in June by 9.1%. The gain follows a change in New York laws that has given a boost to apartment building. Construction of single-family homes fell 5.3% to the slowest pace in 17 years. Applications for building permits, one indicator of future activity, rose 11.6%.
The Labor Department said the number of newly laid-off people seeking unemployment benefits rose by 18,000 last week to 366,000. However, the increase was below the number economists expected.
Corporate results helped buoy investor sentiment.
JPMorgan Chase posted a 53% decline in its second-quarter earnings as mortgage and other loan defaults worsened, but the decline in profits wasn’t as steep as Wall Street had feared and the stock rose $4.86, or 13.5%, to $40.80.
“There were some better-than-expected numbers out of the banks. I think we’re maybe getting a little bit of a sigh-of-relief rally. Things had gotten so scary there for a few days,” said Denis Amato, chief investment officer at Ancora Advisors in Cleveland.
Among other financial issues that gained, Fannie Mae and Freddie Mac jumped after Fitch Ratings affirmed long-term issuer default ratings on the government-chartered mortgage giants. Fitch cut Fannie’s preferred stock rating and put Freddie’s on watch for a possible downgrade.
Investors have worried in recent weeks that they would run into serious financial troubles because of faltering mortgages. Shares of Fannie Mae rose $1.68, or 18%, to $10.93, while Freddie Mac climbed $1.50, or 22%, to $8.33.
United Technologies rose $3.59, or 5.9%, to $64.70 after posting an 11% increase in its second-quarter profit. The maker of machinery including jet engines and ventilation systems reported strong growth at its Otis elevator and Carrier air conditioner divisions. The company also raised its full-year forecast for revenue and per-share earnings.
Coca-Cola’s second-quarter earnings fell 23% as the world’s largest beverage company earned $1.42 billion. Although the company’s revenue and earnings excluding certain items topped expectations, analysts said volume growth was lighter than expected. The stock declined $2, or 3.8%, to $50.34.
The Russell 2,000 index of smaller companies rose 9.88 points, or 1.4%, to 696.63.
Overseas, Japan’s Nikkei stock average closed up 1%. Britain’s FTSE 100 jumped 2.6%, Germany’s DAX index rose 1.9% and France’s CAC-40 surged 2.8%.
