Wall Street extends recent gains in early going
Stock markets worldwide surged Monday on another wave of optimism that the worst is past in the global recession.
The advance on Wall Street pushed the benchmark Standard & Poor’s 500 index back into the black for the year -- recouping 2009 losses that had reached a stunning 25% by early March.
The Dow Jones industrial average gained 214.33 points, or 2.6%, to 8,426.76, its highest close since Jan. 13.
Markets were buoyed by a report showing a sharp turnabout in manufacturing activity in China and by a rise in pending U.S. home sales.
The spring rally has been stoked by “green shoots” -- signs of improvement in the battered economy and financial system. The term was first used by Federal Reserve Chairman Ben S. Bernanke in mid-March.
Much of the data have just hinted that the U.S. economy is contracting more modestly, not that a recovery is imminent. But the stock market tends to rally well in advance of economic turning points, so some investors have been fearful of missing out if the recession is nearing an end.
Stanley Nabi, chief strategist at Silvercrest Asset Management in New York, said the mood shift about the economy had encouraged his firm to funnel money back into stocks.
“Whatever cash we had we are using right now, and we’ve been using for the last several weeks,” he said.
Monday’s gains were broad-based, with rising issues outnumbering losers by nearly 6 to 1 on the Big Board.
In another sign of growing faith that the economy is poised for recovery, crude-oil prices rose $1.27 to $54.47 a barrel in New York futures trading, the highest since November.
Yet as stocks’ rebound entered its ninth week, many veteran analysts were advising caution. Some said relatively low trading volume signaled that the market could be running out of steam.
Others cautioned that upcoming economic data, including Friday’s report on April employment, could be bleak.
“Some buying makes sense but you certainly don’t want to panic in,” said Phil Roth, analyst at Miller Tabak & Co. in New York. “It would be a mistake to say, ‘This is a new bull market. Throw everything in.’ ”
Optimists said the lack of faith was itself a bullish sign.
Critics are “still questioning whether this rally [can last] and they’re calling it a bear-market rally,” said Marc Pado, U.S. market strategist at brokerage Cantor Fitzgerald. “I don’t know how much you have to go up before they stop calling it a bear-market rally.”
The Dow is up 29% from its low on March 9, by far the strongest of five separate rebound attempts since the bear market began in October 2007.
Broader indexes have racked up bigger gains. The tech-heavy Nasdaq composite, which rose 44.36 points, or 2.6%, to 1,764.56 on Monday, has leaped 39% since March 9.
Asian stock markets kicked off the buying wave Monday on news that an index of manufacturing activity in China jumped to 50.1 in April from 44.8 in March -- the first close above the 50 mark since July. Any reading over 50 indicates that activity is expanding.
The Shanghai composite stock index rose 3.3% to its highest level since early August. The index is up nearly 41% this year.
The report on Chinese manufacturing reinforced confidence about recent data showing modest improvement in the U.S. manufacturing sector, Pado said. “It’s an absolute confirmation that the numbers we’re seeing in our domestic manufacturing are not a fluke.”
Stocks also surged across Europe and Latin America.
On Wall Street sentiment was helped by a report that an index of pending U.S. home sales rose for a second consecutive month in March.
Worries about the U.S. financial system, meanwhile, have receded into the background. Investors weren’t fazed by rumors Monday that the government would force Bank of America Corp., Wells Fargo & Co. and other big banks to raise more capital after “stress test” results are announced Thursday.
Wells’ shares soared $4.64, or 24%, to $24.25 after the bank’s biggest investor, Warren Buffett, said he remained bullish about its prospects.
Financial stocks in the S&P; 500 were up 10.1%, on average. All 10 major S&P; industry sectors rose in the session.
“This was one of those days when nobody wanted to get in the way of the momentum,” said Art Hogan, analyst at Jefferies & Co. in Boston.
Still, like Miller Tabak’s Roth, Hogan said relatively subdued trading volume was a concern. Heavy volume would indicate that money was pouring in from big investors; light volume suggests that the market is dominated by traders.
But as share prices rise, volume could begin to surge if more sidelined investors are lured in, analysts said.
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walter.hamilton@latimes.com
