US stocks surge on upbeat earnings and forecasts
Stocks staged their biggest rally in two weeks tonight as earnings and economic reports reassured investors that the economy is continuing its recovery.
The Dow Jones industrial average rose 201 points after strong earnings from Caterpillar, UPS and other companies revived investors’ optimism about the recovery.
A better-than-expected report on housing and encouraging signs of growth in Europe added to the upbeat mood.
Investors who have been mostly selling on disappointing economic and earnings numbers had, at least for the moment, reasons to be buying.
Caterpillar said its orders are growing and production will pick up in the second half of the year. UPS raised its outlook because of spending by businesses. Caterpillar’s stock rose 2.1%, while UPS gained 5.9%.
Chris Hobart, founder of Hobart Financial Group in Charlotte, North Carolina, said the outlooks are especially important because, if companies expect to grow, that might get them to increase recruitment.
If improved outlooks lead to jobs growth, “then this can be better than a good quarter or good second half, (it can mean) we’ve got a good economy,” Mr Hobart said.
A report on the housing market, while still showing a slowdown, was reassuring because it was not as bad as investors expected.
The National Association of Realtors said sales of previously occupied homes fell to an annual rate of 5.37 million in June from 5.66 million a month earlier. Economists forecast the sales rate to fall to 5.18 million.
Traders largely wrote off a jump in the number of people seeking unemployment benefits for the first time as the increase was probably skewed by seasonal factors. Instead, investors focused on earnings from a broad range of companies that showed businesses are not seeing a slowdown in the recovery. News of corporate deals also lifted shares.
Meanwhile, European markets rose after a report showed unexpected growth in the 16-nation group that uses the euro.
In recent months, investors worldwide have been concerned that rising government debt in Europe would stall a global recovery.
A jump in Europe’s purchasing managers index reported today was a welcome relief after forecasts of a possible recession on the continent.
Economic reports from Europe were “a big surprise because everyone expects that to be the Achilles heel of the global economy”, said Anthony Chan, chief economist at JP Morgan Private Wealth Management in New York.
It was problems in Europe that set off the big drop in stocks in late April. As Greece struggled to make debt payments and ratings agencies downgraded the government debt of several companies, stocks plunged in the US on fears that the domestic recovery was in jeopardy.
Stocks then fell further as US economic reports showed that the recovery was at best bumpy. Some investors feared a “double dip”, or the economy falling back into recession.
The Dow rose 201.77, or 2%, to 10,322.30. The Standard & Poor’s 500 index rose 24.08, or 2.3%, to 1,093.67, while the Nasdaq composite index rose 58.56, or 2.7%, to 2,245.89.
Only 397 stocks fell on the New York Stock Exchange, while 2,675 rose. Volume came to 1.2 billion shares.
