Optimism lifts US stocks
Stocks rallied strongly on Wall Street today 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.
But 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 industrial 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%, to 10,552.78.
Broader stock indicators also were higher. The Standard & Poor’s 500 index rose 10.79, or 0.89%, 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 66.79dollars, up 44 cents, on the New York Mercantile Exchange.
Bonds fell, with the yield on the 10-year Treasury note rising to 4.29% from 4.26% late Wednesday.
The US 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 Private Bank.
On the economic front, the market would have loved strong gross domestic product numbers from the Commerce Department – had they felt the numbers were relevant.
The reported annual growth rate of 3.3% came from data gathered before Katrina and Rita. While GDP measures the value of all goods and services produced within the US and is the best barometer of the nation’s economic fitness, traders are waiting for numbers that will show the hurricanes’ effect on the economy.
In company news, PepsiCo, the soft drink and snack foods maker, said its third-quarter profit dropped because of a charge related to repatriation of overseas earnings. Still, its results without the charge beat Wall Street estimates. Its shares rose 1.44dollars to 56.50dollars.
E-Trade Financial Corp. climbed 89 cents to 17.22dollars after it said it will acquire BrownCo, the online deep discount brokerage service of JPMorgan Chase & Co, for 1.6 billion dollars in cash.
After the deal closes, E-Trade will have nearly 4.3 million customer accounts, 160 billion dollars in customer assets, total customer cash and deposits of 27 billion dollars, more than 6.2 billion dollars in average margin debt and about 160,000 daily average revenue trades. JPMorgan rose 43 cents to 34.35dollars.
General Electric Co. added 16 cents to 33.65dollars after it said its health care unit would buy IDX Systems Corp., which produces software for hospitals and doctors’ offices, in a deal the companies valued at 1.2 billion dollars . IDX rose 23%, or 8.08dollars, to 43.25dollars.
Advancing issues led decliners by more 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%, to 665.03.
