Investor optimism buoys market
Stocks rallied strongly Thursday as investors grew more confident about the prospects for the economy despite the impact of hurricanes Rita and Katrina.
While many of the hurricanes’ long-term effects have yet to be determined, stocks rebounded after two weeks of losses on bullish comments from analysts and the government. However, the markets remain relatively unchanged for the month, and trading was very light.
In addition, the market’s gains may be short-term, as investors wait for new economic data that will give Wall Street a better feel for the storms’ effects on employment, consumer demand and inustrial production. Next month’s third-quarter earnings will also be an important barometer of the economy’s health.
“It’s a trading rally, and not much more than that,” said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. “If there’s anything you can hang your hat on, it’s that with every passing day, some investors become convinced that there’s not going to be any serious fallout or damage to the economy or earnings due to the hurricanes.”
The Dow Jones industrial average rose 79.69, or 0.76 percent, to 10,552.78.
Broader stock indicators also were higher. The Standard & Poor’s 500 index rose 10.79, or 0.89 percent, to 1,227.68, and the Nasdaq composite index climbed 25.82, or 1.22 percent, to 2,141.22.
Oil prices rose for a second straight session. A barrel of light crude was quoted at $66.79, up 44 cents, on the New York Mercantile Exchange.
Bonds fell, with the yield on the 10-year Treasury note rising to 4.29 percent from 4.26 percent late Wednesday. The U.S. dollar was mixed against other major currencies in European trading. Gold prices were higher.
The hurricanes left some businesses battered, but should help earnings elsewhere. The problem is that despite Wall Street’s overall bullishness, no one can yet knows which companies will fall into which category. Third-quarter earnings may not even be a solid indicator, as much of the economic impact from the storms may not show up until the fourth quarter or beyond. Wall Street will be particularly focused on company forecasts as they release results.
“That’s where investors should be shifting their emphasis in the information-rich next few weeks,” said Jack Caffrey, equities strategist at J.P. Morgan.
Advancing issues led decliners by moer than 2 to 1 on the New York Stock Exchange, where volume was moderate.
The Russell 2000 index of smaller companies rose 8.99, or 1.37 percent, to 665.03.
Overseas, Japan’s Nikkei stock average rose 1.35 percent. Britain’s FTSE 100 fell 0.30 percent, Germany’s DAX index was down 0.55 percent, and France’s CAC-40 fell 0.45 percent.