Blue-chip Dow Jones index is on a tear
Armageddon looks as if it will be postponed again — or so Wall Street must think.
The blue-chip Dow Jones index rose for a fourth straight week, boosted by a strong rally Friday as money poured in despite uncertainty over Europe’s plan to contain its government-debt crisis.
The Dow jumped 267.01 points, or 2.3%, to 11,808.79, the index’s highest closing level since Aug. 3. It gained 1.4% for the week.
Although many investors feared that October would bring another market bust, the opposite has happened: After diving to one-year lows Oct. 3, stocks have mostly moved higher since, although trading has remained volatile.
The Dow is up 8.2% this month, and is up 1,153 points, or 10.8%, from the Oct. 3 low.
The market has been bolstered by economic reports in recent weeks showing that “the economy is not falling off a cliff,” said Russ Koesterich, global chief
investment strategist at BlackRock Institutional Trust in San Francisco.
September retail sales and housing starts were better than expected, for example, and new claims for jobless benefits have declined in recent weeks after spiking in early September.
Also, third-quarter corporate earnings reports have mostly exceeded analysts’ expectations so far.
Although that’s usually the case with earnings, the fear coming into reporting season was that the economy had weakened enough in the quarter to pull the rug out from under profits.
Instead, earnings of the Standard & Poor’s 500 companies are on track to rise 14.7% for the quarter from a year earlier, according to estimates tracked by Thomson Reuters. The estimate has climbed from 13.1% on Oct. 3.
The biggest unknown hanging over markets worldwide for the last few months has been Europe’s debt mess.
This weekend European leaders will begin six days of meetings aimed at devising a financial plan to support struggling member states and their banks — and, it is hoped, to once and for all snuff out the fear of a crisis that could fuel a new economic meltdown.
The key is what additional resources Europe’s healthy states, mainly
Germany, will be willing to commit to the $600-billion rescue fund set up last summer.
The rally in U.S. and European shares Friday may reflect that while investors don’t expect many details from Europe’s summit, they also don’t expect talks to collapse completely, said Tim Ghriskey, chief investment officer at money manager Solaris Group in Bedford Falls, N.Y.
The German stock market jumped 3.6% after sliding 2.5% Thursday.
Ghriskey also noted that the ongoing pattern of abrupt market moves suggested that activity remains dominated by short-term players.
On Monday, the Dow had tumbled 247 points, or 2.1%.
“This is trading money that is zooming into the market now,” he said.
But those buyers could continue to pour in if the October advance holds up: Momentum feeds on itself, and even if traders think the rally is good for just another 10%, that’s 10% they don’t want to miss.
Also, portfolio managers who are lagging key market indexes will face pressure to hop into stocks if the rally persists, hoping to improve their performance for 2011.
What’s more, Wall Street knows that November and December historically have been strong months for the market, as investors look ahead to the new year.
Since 1950, November and December have been the best two-month period of the year for the S&P 500 index, according to the Stock Trader’s Almanac. The index’s average gain has been 1.5% in November and 1.7% in December.
Year to date, the S&P is down 1.5%. The Dow is up 2%.
