Markets Rise on Signs of Economic Growth

Markets Rise on Signs of Economic Growth


By JACK HEALY
Published: August 3, 2009
For thousands of investors whose portfolios are benchmarked to the Standard & Poor’s 500-stock index, recovery was a thing with four digits on Monday.

The closely watched stock index closed above 1,000 for the first time since Election Day, hardening beliefs that stock markets would continue to march higher as the recession shows signs of bottoming. Like other market gauges, the S.&P. 500 is still off more than a third from its all-time highs, but it has soared from its bear-market lows and is now up 11 percent for the year.

The day’s gains added more momentum to a three-week surge that lifted the Dow above 9,000 points as banks and major corporations showed they could still turn profits even as job losses mounted and the prospects for near-term economic growth remained cloudy.

Waves of optimism about global industry lifted the price of oil, grains metals and other commodities, as traders bet that a recovery would drive global consumption higher and revive the demand for raw materials.

Automakers were reaping a boost in sales from the government’s “cash for clunkers” program, which gives credits to motorists who trade in their cars for new, more fuel efficient ones. The Ford Motor Company reported that sales rose 2.3 percent in July, its first monthly sales increase since 2007.

Shares of Ford gained 4 percent, and American-traded shares of foreign car companies Toyota, Nissan and Honda were all higher.

Analysts said the deluge of subsidized auto sales unmasked a sign of economic recovery: pent-up consumer demand. Although consumer spending fell at a rate of 1.2 percent during the spring, consumers are more confident than they were last winter, and they are still willing to spend money when enticed by a bargain.

“The key here is, where’s the consumer mindset?” said Marc Pado, market strategist at Cantor Fitzgerald. “Consumers, when they perceive the bottom, are willing to jump out and buy high priced durable goods. The consumer’s getting hungry.”

Signs of improvement the industrial sectors of China, Europe and Britain bolstered stock markets in Asia, London, Paris and Frankfurt. And more positive readings on manufacturing and the housing market in the United States propelled stock markets on Wall Street toward their highest levels of the year.

The Dow Jones industrial average was gained 114.95 points or 1.25 percent to end at 9,286.56, also the best close since early November. The S.&P. 500 rose 15.15 points or 1.53 percent to close at 1,002.63. The Nasdaq composite index gained 1.5 percent to cross above the 2,000-point threshold, a line it had not breached since early October.

Leading the way were companies that sell oil and natural gas, and those that manufacture basic materials like steel, paper products or plastic. Investors rushed to buy their shares as the price of oil rose more than $2, to nearly $72 a barrel, and the prices of gold and copper also surged.

But the stock market’s gains were the dollar’s losses — and the Treasury market’s.

The dollar index, which weighs the currency’s value against six major currencies, fell to its lowest levels since late September.

The price of 10-year Treasury notes fell XXXX to XXXX as investors anticipating an economy recovery sought out higher yielding investments. The yield on the 10-year note, which moves in the opposite direction of price, rose to 3.64 percent from 3.48 percent late Friday.A surprising, though slender, 0.3 percent increase in construction spending in June also leavened the mood on Wall Street and offered optimistic forecasters another sign that the housing market was near bottom, if not already staging a recovery.

Builders spent more money in June to construct new homes, hotel projects, commercial centers and other projects, the Commerce Department reported on Monday. Part of the overall rise came from a 1 percent increase in government construction spending as stimulus projects began to get under way.

And the Institute for Supply Management reported that manufacturing activity contracted at its slowest pace since last August as businesses reported more orders and higher production than previous months, and improvements in employment conditions. The group’s manufacturing index rose to 48.9 in July, from 44.8 a month earlier.

“This is good news, though we still can’t be sure if further sustained strength is possible in the face of continued consumer deleveraging,” Ian Shepherdson, chief United States economist at High Frequency Economics, wrote in a research note. “This could just be a catch-up after the post-Lehman disaster.”

http://www.nytimes.com/2009/08/04/business/04markets.html?ref=business