Stocks moderately higher at opening
Federal Reserve Chairman Ben S. Bernanke said what investors wanted to hear, that the economy is indeed on the verge of recovery, and they responded with a rally that sent the major indexes to new highs for the year.
The Dow Jones industrials shot up 155 points Friday, closing above 9,500 for the first time since Nov. 4, and all the big indexes finished with gains of more than 1.5%. Meanwhile, Treasury prices tumbled, pushing yields sharply higher, as investors no longer felt they needed the safety of government debt.
The stock market’s gains were broad, reaching across all industries, but the biggest jumps came from energy, industrial and material stocks as oil and commodity prices soared. Bank stocks also rose sharply.
Just nine days after the Fed declared the economy to be “leveling out” rather than contracting, Bernanke went further, saying, “The prospects for a return to growth in the near term appear good.”
Speaking at an annual Fed conference in Wyoming, Bernanke did warn that lending was not back to normal and that consumers’ and businesses’ difficulty in obtaining loans would be a challenge. But his tone was the most optimistic it has been since the start of the financial crisis.
A bigger-than-expected jump in home sales also gave stocks a boost and helped send bonds lower. The National Assn. of Realtors said sales of existing homes rose 7.2% in July to a seasonally adjusted annual rate of 5.24 million, up from June’s pace of 4.89 million.
It was the fourth straight monthly increase and the highest level of sales since August 2007. The rise in sales came amid a sharp decline in home prices.
The day’s news ended a week of erratic trading on Wall Street. Investors have been struggling with concerns about consumer spending, but Bernanke’s remarks and the home sales data pulled stocks out of the doldrums.
Still, the market’s challenges, including rising unemployment and sluggish consumer spending, are far from over. Analysts cautioned that stocks would probably bounce around through at least the rest of the summer.
“The news isn’t going to be all good from here on out,” said Jordan Smyth, managing director at Edgemoor Investment Advisors in Bethesda, Md.
The Dow rose 155.91, or 1.7%, to 9,505.96. The Standard & Poor’s 500 index rose 18.76, or 1.9%, to 1,026.13, its highest close since Oct. 6. And the Nasdaq composite index rose 31.68, or 1.6%, to 2,020.90, its highest close since Oct. 1.
For the week, the Dow rose 2.0%, the S&P; 500 gained 2.2% and the Nasdaq added 1.8%.
In another sign of investors’ growing confidence in the economy, oil prices touched their highest point of the year on hopes that energy demand would soon pick up. After nearing $75 a barrel, light, sweet crude for October delivery closed up 98 cents at $73.89 on the New York Mercantile Exchange.
