US stocks extend rally
US stocks jumped again today following news that CIT had struck a financing deal that will keep the troubled commercial lender out of bankruptcy.
More upbeat earnings reports and a better-than-expected read on future economic activity also drove shares higher.
A 100-point gain pushed the Dow Jones industrials back into the black for the year, while the Standard & Poor’s 500 climbed to its highest finish since November.
CIT Group’s deal with its bondholders stoked the market’s growing sense of optimism, which got a big boost last week from a string of good earnings news. That sent the Dow and the S&P 500 to their best week since the market began to rally in March.
CIT’s future was cast in doubt after negotiations with federal regulators for bailout funds fell through. Its failure would have been a blow to investor confidence and would have hurt industries like retailing, which has suppliers who rely on CIT for financing.
A surprisingly large rise in a predictor of future economic activity also supported stocks. The Conference Board’s index of leading economic indicators rose 0.7% in June, more than the 0.4% forecast. It was the third straight month of increases.
Market indicators jumped about 7% last week following a month-long slide driven by discouraging reports on the economy.
Solid earnings and outlooks from leading companies including Goldman Sachs Group, Intel Corp. and International Business Machines Corp. gave investors hope that the worst of the recession could be past.
George Shipp, chief investment officer at Scott & Stringfellow in Virginia Beach, Virginia, said word that CIT might be able to sidestep bankruptcy gave investors another sign that the economy and the markets are healing because the US government was not forced to intervene.
“The private sector is stepping in where the taxpayer didn’t have to this particular time. That’s the way it’s supposed to work,” he said.
The Dow rose 104.21, or 1.2%, to 8,848.15, its highest level since January 6. The last time the Dow was this high stocks were just about to endure a steep drop that left the blue chips at a 12-year low on March 9.
The S&P 500 index rose 10.75, or 1.1%, to 951.13, its best finish since November 5.
November’s lows last year came after months of brutal selling as the financial crisis intensified in the fall with the collapse of Lehman Brothers. Investors had hoped the November lows would be the bottom of the market’s retreat but stocks slid further by March.
The Nasdaq composite index rose 22.68, or 1.2%, to 1,909.29, its ninth straight advance. The index is at its highest mark since October 3, which was during the most furious selling of the credit crisis.
Among the earnings news, toy maker Hasbro’s profit rose 5%, beating expectations, as strong US revenue offset international sales hurt by the stronger dollar. The stock gained 4.2%, rising 1.07 to 26.45.
Oilfield services company Halliburton Co. said its profit tumbled 48% amid sluggish exploration and production activity, but the results were better than analyst forecasts and its shares rose 95 cents, or 4.4%, to 22.33.
With the bulk of earnings reports still to come, the market has yet to hear from some key industries including retailing. If those results are disappointing, it could force investors to rethink their most recent rally. Several factors are still hanging over the market including record-high unemployment and a damaged housing market.
On Monday, though, the CIT news and optimism over better earnings reports stoked investors’ appetite for risk. Investors moved out of safe-haven assets like US Treasurys and the dollar, and into riskier bets like commodities. CIT jumped 55 cents, or 79%, to 1.25.
In other news, shares of biotech drugmaker Human Genome Sciences more than tripled after the company reported positive results for an experimental lupus drug, topping analyst expectations and potentially clearing the way for the first new treatment against the inflammatory disease in a half century. The stock jumped 9.19 to 12.51.
But some analysts said the market could have a hard time advancing, even with more welcome developments.
“The market itself has hit kind of a top here temporarily. People are already getting used to the earnings,” said Matt Lloyd, chief investment strategist at Advisors Asset Management.
Bond prices rose, pushing yields lower. The yield on the benchmark 10-year Treasury note fell to 3.61% from 3.66% late Friday.
Advancing stocks outnumbered those that fell by more than 3-to-1 on the New York Stock Exchange, where volume came to 1.1 billion shares compared with 1.3 billion traded Friday.
The Russell 2000 index of smaller companies rose 7.74, or 1.5 %, to 526.96.
