Economic news sends stocks soaring
NEW YORK – Wall Street resumed its rally Wednesday after new data showed the overall economy is holding up but isn’t too strong to prevent the Federal Reserve from cutting interest rates. The Dow Jones industrial average rose nearly 200 points.
Stocks turned around following two sessions of losses after a report showed hiring in the U.S. private sector expanded at a faster pace in November. ADP Employer Services said 189,000 jobs were added during the month – an increase that bodes well for consumer spending.
The report raised hopes for a strong November jobs report from the Labor Department on Friday. Investors were also encouraged Wednesday after the department reported worker productivity advanced by an annual rate of 6.3 percent in the summer, the fastest pace in four years, while wage pressures eased.
“The best news for the market is good news on the economy,” said Jack Ablin, chief investment officer at Harris Private Bank. “There might be a general malaise among homeowners these days, but as long as more people are getting paychecks then the economy can withstand the stress.”
Still, there is enough uncertainty in the economy to bolster the argument for lower rates. The financial sector is still struggling from months of credit problems, and the Institute for Supply Management reported Wednesday that service sector growth slowed in November.
Some investors are betting the Fed will go beyond the generally anticipated quarter percentage point cut, and lower rates by a half point. A mere quarter-point cut could bring some disappointment to Wall Street, but as long as the Fed reiterates an openness to lower rates further in its accompanying economic assessment, the market should move higher, said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research.
“We could see a nice December here,” Detrick said.
The Dow rose 196.23, or 1.48 percent, to 13,444.96, resuming the big recovery it launched last week following a mostly dismal November.
The blue chip index got an extra boost from component American International Group Inc., which said that although it’s expecting a hefty portfolio writedown in the fourth quarter, the ongoing mortgage crisis is manageable. AIG rose $2.70, or 4.9 percent, to $58.15.
Broader indexes also moved higher. The Standard & Poor’s 500 index added 22.22, or 1.52 percent, to 1,485.01, while the Nasdaq composite index rose 46.53, or 1.78 percent, to 2,666.36.
Overseas, Japan’s Nikkei stock average closed up 0.83 percent, while Hong Kong’s Hang Seng index rose 1.61 percent. Britain’s FTSE 100 closed up 2.83 percent, Germany’s DAX index rose 1.74 percent, and France’s CAC-40 increased 2.02 percent.