Stocks rally on retail sales data
Stocks surged Thursday as solid retail sales and encouraging jobless data raised hope for the economy despite a sharp rebound in oil prices. The Dow Jones industrials gained more than 200 points for the first time since April.
Wal-Mart Stores spearheaded the rally with stronger-than-expected sales attributed to consumers spending their tax rebate checks.
The market also was buoyed by news that first-time claims for unemployment benefits decreased last week.
Investors appeared to interpret the data as signaling that consumer spending can withstand the ill effects of falling housing values and high gasoline prices.
“We’re radically moving from the widespread view of absolute recession to, ‘We’re not going to have a recession and maybe the economy’s starting to recover,’ ” said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.
“The real fear was that the consumer was going to die and jobs were going to go away,” he said. “If that’s not the case, we can probably weather the rest of it.”
A clearer picture of the job market is due today with the government’s monthly report on employment. Analysts are expecting payrolls to drop 60,000 jobs, Paulsen said, but so-called whisper numbers circulating on Wall Street suggest a smaller decline.
Stocks could extend their rally if that plays out, he said.
The Dow gained 213.97 points Thursday, or 1.7%, to 12,604.45. It gathered steam in the late afternoon and closed near its high for the day, a bullish sign.
The Standard & Poor’s 500 index surged 26.85 points, or 2%, to 1,404.05.
The technology-heavy Nasdaq composite index rose 46.80 points, or 1.9%, to 2,549.94.
Stocks that traditionally perform well in the early stages of an economic upswing -- including transportation issues and small-cap shares -- performed especially well.
The Dow transportation average zoomed 2% to a record high, topping its previous high mark set last July and becoming the first of Wall Street’s major market gauges to hit a new high this year.
Despite a slide this year in the transport average’s airline stocks, the index is up 20% year to date because it is dominated by railroad stocks, which have performed well this year.
The Russell 2,000 small-cap index jumped 2.6%, and the S&P; 400 mid-cap index gained 2.3%.
The upbeat economic news lifted yields on government bonds. The benchmark 10-year Treasury note rose to 4.04% from 3.98% late Wednesday.
The cloud over stocks remains oil prices, which vaulted up again after dropping about $10 a barrel in the last two weeks. Crude futures shot up $5.49 to $127.79 a barrel in New York trading.
Bearish analysts argue that the economy and stock market aren’t as strong as they look.
Although the rally might “have some legs” in the near term thanks to the tax stimulus package, investors are deluding themselves into believing the economy will zoom, said Phil Roth, technical analyst at Miller Tabak & Co. in New York.
After the tax-rebate bloom fades, he added, consumers will still be grappling with the housing slump and elevated pump prices.
The advance in stock prices and bond yields Thursday “means investors think there’s an economic boom,” Roth said. “That’s wacky.”
In the retail sector, Wal-Mart shot up $2.12, or 3.7%, to $59.80 after reporting that its sales at stores open at least a year rose 4.4% in May, more than double the increase the discounter had forecast.
Costco Wholesale leaped $2.69, or 3.8%, to $73.50 after posting a better-than-expected 9% increase in sales last month, but it attributed almost half of the gain to higher gas prices.
Financial shares rallied as investors shook off recent worries that banks are in for further credit-related shocks.
Lehman Bros. Holdings rose $2.45, or 7.8%, to $33.85. Morgan Stanley was up $1.23 to $44.59 and JPMorgan Chase tacked on 47 cents to $42.10.
In other market highlights:
* Advancing issues outnumbered decliners by more than 4 to 1 on the New York Stock Exchange.
* Oil stocks advanced on the rally in crude, helping the S&P; 500 Energy index jump 4.4%. Exxon Mobil climbed $3.56, or 4.2%, to $89.31. Chevron increased $3.95, or 4.1%, to $99.99.
* Verizon Communications leaped $1.98, or 5.4%, to $38.96 after saying its wireless affiliate would acquire Alltel for $5.9 billion in a deal valued at $28 billion, including assumption of debt. The planned transaction would push Verizon Wireless past AT&T; to become the biggest cellphone operator in the U.S. Private equity investors bought Alltel in a $27.5-billion leveraged buyout late last year.
* Continental Airlines rose 70 cents, or 4.8%, to $15.20 after saying it would cut 3,000 jobs and slash its capacity by 11% to adjust to high jet fuel prices. It said the industry’s business model “doesn’t work with the current price of fuel.”
* Standard & Poor’s downgraded the bond insurance units of Ambac Financial and MBIA. But the move followed a warning by Moody’s Investors Service a day earlier that it might downgrade the insurers. Ambac rose 13 cents, or 5.2%, to $2.62, and MBIA rose 41 cents, or 7.3%, to $6.04.
* Overseas, key stock indexes fell 0.6% in Japan, 0.3% in Germany and 0.2% in France. Shares rose 0.4% in Britain.
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