Markets maintaining momentum, surging to '09 highs

The stock market is keeping its momentum going, giving shares their best week in more than two months.
OCT 12, 2009
The stock market is keeping its momentum going, giving shares their best week in more than two months. Moderate gains last Friday led by health care and utility companies pushed stocks to a 4 percent gain for the week, their best performance since July. The Dow Jones industrial average gained 78 points, reaching its highest level in a year. Bond prices tumbled, extending the previous day's losses, as the Treasury market struggled to absorb $71 billion of new supply auctioned off this week in the government's ongoing efforts to fund its stimulus programs. The market's performance was a fitting way to commemorate the second anniversary of the record highs set by the Dow and the Standard & Poor's 500 index, which closed at 14,164.53 and 1,565.15 respectively. It was after reaching those milestones that the market began what turned into a cataclysmic slide that ended March 9. Investors cheered more signs that the economy is healing, including growth in service industries, a surprise profit from aluminum maker Alcoa Inc. and the first gain in retail sales in over a year. That helped put a seven-month rally back on track after two down weeks driven by disappointing economic data. The dollar recovered some of its recent losses against other currencies Friday after Federal Reserve Chairman Ben Bernanke reassured markets that the Fed will wind down its extraordinary stimulus measures when the time is right. Some investors interpreted Bernanke's comments as a sign the Fed might raise interest rates sooner than expected. The dollar is a double-edged sword for the stock market. The dollar would benefit from higher interest rates but if the Fed tightens credit too soon it could choke off an economic recovery. On the other hand a continued fall in the dollar, which is more likely with lower interest rates, could trigger inflation. "What's particularly concerning for investors is if there is a sharp, sustained move (by the dollar) in one direction or another," said Jordan Smyth, managing director at Edgemoor Investment Advisors. The moderate rise in stocks Friday comes two years to the day after the market hit its peak. The Dow is still down 30.4 percent from its high on Oct. 9, 2007, while the S&P 500 index is down 31.5 percent. The Dow rose 78.07, or 0.8 percent, to 9,864.94, its highest close since Oct. 6 last year. The S&P 500 index rose 6.01, or 0.6 percent, to 1,071.49, while the Nasdaq composite index rose 15.35, or 0.7 percent, to 2,139.28. For the week, the Dow rose 4 percent, its biggest gain since the week ended July 24. The S&P 500 index rose 4.5 percent, its best performance since the week ended July 17. The Nasdaq added 4.5 percent. Bond prices fell sharply as selling that was sparked by a weak auction of 30-year bonds on Thursday continued. The 30-year bond fell more than 2 points — its biggest one-day drop in nearly three months — sending its yield up to 4.22 percent from 4.09 percent late Thursday. The yield on the benchmark 10-year Treasury note rose to 3.38 percent from 3.25 percent. Despite the big gain in stocks this week, analysts warn that trading could be bumpy in the coming weeks as investors sift through companies' quarterly earnings reports. Major financial firms will report results next week, including JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. Better-than-expected earnings from banks this year have been a big force behind the market's rally. Investors, having sent the S&P 500 index up 58.4 percent since March, are looking for reassurance from companies that the economy is growing. "The market has factored in good earnings and the market has actually discounted good guidance as well," said Jim Herrick, director of equity trading, Baird & Co. "So if we don't see that, the market will retrace." Outside of earnings reports, the dollar will remain a focus. The slide in the dollar has been a boon to both stocks and commodities this year. A weak dollar makes commodities more attractive to foreign investors. Likewise, it helps boost corporate profits at companies that have a strong presence overseas by making prices of their exported goods cheaper for buyers in other countries. Oil prices rose 8 cents to settle at $71.77 a barrel on the New York Mercantile Exchange. Gold prices slipped after touching a fresh high of $1,062.70 on Thursday. Three stocks rose for every two that fell on the New York Stock Exchange, where consolidated volume came to a relatively low 990 million shares, compared with 1.3 billion Thursday. In other trading, the Russell 2000 index of smaller companies rose 7.17, or 1.2 percent, to 614.92. Overseas, Britain's FTSE 100 rose 0.1 percent, Germany's DAX index dipped 0.1 percent and France's CAC-40 fell 0.2 percent. Japan's Nikkei stock average rose 1.9 percent. _____ The Dow Jones industrial average closed the week up 377.27, or 4 percent, at 9,864.94. The Standard & Poor's 500 index rose 46.28, or 4.5 percent, to 1,071.49. The Nasdaq composite index rose 91.17, or 4.5 percent, to 2,139.28. The Russell 2000 index, which tracks the performance of small company stocks, rose 34.72, or 6 percent, for the week to 614.92. The Dow Jones U.S. Total Stock Market Index — which measures nearly all U.S.-based companies — ended at 10,963.48, up 493.93, or 4.7 percent.

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