Stocks rise sharply in early trading
Wall Street’s summer rally showed renewed strength Thursday as reassuring profit reports and encouraging news on the jobs front buoyed investor hopes that the U.S. economy was on the mend.
Key stock indexes closed at their highest levels since at least early November.
However, a late burst of selling lopped off almost half the day’s gains, reversing the market’s recent trend of end-of-session rebounds.
The Dow Jones industrial average was up more than 175 points earlier in the day before closing with a gain of 83.74 points, or 0.9%, at 9,154.46.
The late pullback also denied the tech-dominated Nasdaq composite index a chance to close above 2,000 for the first time in nine months. The Nasdaq gained 16.54 points, or 0.8%, to 1,984.30 after trading as high as 2,009.
Traders said the market’s strong run this month -- the Dow is on track for its best July in 20 years -- may simply have convinced some investors to cash in gains late in the day.
The midsummer rally will face a new test today, as the government issues its initial report on U.S. second-quarter gross domestic product.
The economy shrank at a 1.5% annualized rate last quarter, according to economists surveyed by Bloomberg News.
That would mark the fourth straight quarterly drop. But a 1.5% decline would be a significant improvement from the 5.5% plunge in the first quarter, and could pave the way for growth in the current quarter.
“The economic indicators should continue to confirm what the stock market is suggesting -- that the recovery is here,” said Peter Cardillo, chief market economist at Avalon Partners in New York.
Profit reports from some major U.S. companies reinforced that view Thursday. Motorola surprised analysts by reporting a small profit, and Goodyear Tire & Rubber’s loss was half what Wall Street was expecting.
Andrew Liveris, chairman and chief executive of Dow Chemical, meanwhile, proclaimed that “the United States economy has found bottom.”
In addition, the government reported that the number of Americans continuing to collect unemployment benefits fell last week to 6.2 million, defying forecasts of an increase.
But these upbeat signs come with the same caveats that have lurked in the background during the latest market run-up.
Liveris, for instance, warned that a recovery “will be slow . . . as unemployment continues to be a drag on consumer spending.” And Motorola’s profit was achieved through cost-cutting; sales fell 32% from a year ago.
“Earnings season has been good, but if you called it ‘revenue season,’ the results would be a lot more mixed,” said Peter Boockvar, equity strategist at New York brokerage Miller Tabak & Co.
Boockvar worries that continued weakness in the housing market, combined with high unemployment and tepid consumer spending, stand in the way of a robust recovery: “This is not a garden-variety recession, so it’s not going to be garden-variety recovery.”
Still, stock buyers “are positioning themselves ahead of the fundamentals,” anticipating an economic turn, said Ryan Larson, head of equity trading at Voyageur Asset Management in Chicago.
Among the day’s market highlights:
* The Standard & Poor’s 500 index rose 11.60 points, or 1.2%, to 986.75, and traded as high as 996.68. The S&P; last closed above 1,000 on Nov. 4.
* Commodities rebounded after tumbling on Wednesday. Near-term crude oil futures rose $3.59 to $66.94 a barrel.
* Wall Street’s mood was boosted by strong demand at the Treasury’s auction of $28 billion in seven-year notes, after weak bidding greeted sales of two-year and five-year T-notes earlier in the week.