U.S. stocks extended their recent rally Thursday, with the Dow industrials and S&P 500 finishing over 2% higher while the tech-heavy Nasdaq index jumped nearly 4%.
Investors seized on some pieces of positive news: stronger-than-expected earnings at Best Buy (BBY), ConAgra (CAG), and Dr. Pepper Snapple Group (DPS); reports on fourth-quarter gross domestic product and weekly jobless claims that, while weak, did not meet the worst forecasts of Wall Street economists; and a well-received auction of 7-year Treasury notes.
On Thursday, the 30-stock Dow Jones industrial average finished higher by 174.75 points, or 2.26%, at 7,914.52. All the component stocks in the index finished higher, except Bank of America (BAC) and Citigroup (C).
The broad S&P 500 index added 18.98 points, or 2.33%, to 832.86. Among the best-performing sectors: computer & electronics retail, automobile manufacturers, homebuilding, and construction materials.
The Nasdaq composite index was the clear winner in the session, jumping 58.05 points, or 3.80%, to 1,587.00. The index was paced by strength in Internet names Google (GOOG), IAC/Interactive (IACI), and ValueClick (VCLK) after a Canaccord Adams analyst upgraded the stocks.
Research in Motion (RIMM) rose after a Goldman upgrade.
Tech investors were also encouraged by a better-than-expected report from NYSE-listed Red Hat (RHT).
On the New York Stock Exchange, 24 stock were higher in price for every six that declined. Nasdaq breadth was 22-5 positive.
Along with stocks, Treasuries climbed after the government's $24 billion auction of 7-year notes was well received, with sizable participation from buyers outside the U.S. The dollar index, gold futures and crude oil futures also gained ground.
John Wilson, chief technical strategist at Morgan Keegan, sees signs that the recent market rally is sustainable. "Overall I think we turned the corner," he says. The market seems to be looking past the current tough economy, betting that a recovery may arrive later this year. "The wind is in our sails," Wilson says.
While the market rally may need to pause at some point, he's confident that stocks won't return to their rock-bottom lows of early March.
But some Wall Street pros remain wary. Richard Sparks of Schaeffer's Investment Research notes the S&P 500 has now completed its fourth 20% rally since October. "Of course, we know what happened to the other three," he says: The rallies collapsed as the markets returned to new recent lows. "We are still in a bear market and still in a downtrend," Sparks says.
However, the late afternoon rally Thursday was encouraging. "The buyers are overwhelming the sellers for once," he says.
Traders were looking ahead to Friday's reports on February personal spending and the University of Michigan consumer sentiment index for March.
Stocks started out in the green Thursday after Treasury Secretary Timothy Geithner unveiled the Obama Administration's financial-system overhaul plan, designed to impose greater regulation on major players like hedge funds. The Associated Press reported Geithner told lawmakers the changes are needed to fix the flaws exposed by the current financial crisis, the worst to hit the country in seven decades. The goal is to repair a system that has proven "too unstable and fragile," he said.
The administration's proposal, which will require congressional approval, would impose tougher standards on financial institutions judged to be so big that their failure would represent a risk to the entire system. It also would extend federal regulations for the first time to all trading in financial derivatives, exotic financial instruments such as credit default swaps that were blamed for much of the damage in the meltdown.
The administration also wants larger hedge funds to be required to register with the SEC. In addition, the administration proposed the creation of a systemic risk regulator to monitor the biggest institutions. Geithner did not designate where such authority should reside, but the administration is expected to support awarding this power to the Fed.
The plan also includes a measure that Geithner and Fed Chairman Bernanke discussed before the committee on Tuesday to give the administration expanded powers to take over major nonbank financial institutions, such as insurance companies and hedge funds that were teetering on the brink of collapse.
Obama talked about his $3.6 trillion budget and other issues at a town hall meeting Thursday, notes S&P MarketScope.
Freddie Mac said 30-year fixed-rate mortgages (FRM) rates fell to a record 4.85% low in the current week from 4.98% a week ago and 5.85% during the same week a year ago.
According to a Wall Street Journal report, commercial real-estate loans are going sour at an accelerating pace, threatening to cause tens of billions of dollars in losses to banks already hurt by the housing downturn. The delinquency rate on about $700 billion in securitized loans backed by office buildings, hotels, stores and other investment property has more than doubled since September to 1.8% this month, according to data provided to the Journal by Deutsche Bank AG. While that's low compared with the home-mortgage delinquency rate, it's just short of the highest rate during the last downturn early this decade.
Within days, just over a month after setting to work, President Obama's auto-industry task force will begin announcing decisions, the Journal reported Thursday. Interviews with task-force members indicate that the administration doesn't want to let General Motors Corp. (GM) and Chrysler LLC slip into bankruptcy protection, a course advocated by some critics of the industry. Instead, the task force is expected to say that it sees viable futures for both GM and Chrysler, but only if there are sacrifices from their managements, unions and GM's bondholders. The team will also lay out a firm timeline for action.
Dallas Federal Reserve Bank President Richard Fisher was slated to deliver a speech to Dayton University students Thursday. Richmond Fed President Jeffrey Lacker was set to speak in Charleston, while Minneapolis Fed President Gary Stern was to deliver an address in Minneapolis.
In economic news Thursday, U.S. final fourth-quarter GDP growth was revised fractionally lower to -6.3%, from -6.2% in the advance report and -3.8% for the preliminary report. That's not as bad as expected, says Action Economics. Spending at -4.3% in the preliminary print was not revised. Private investment was revised down to -23.0% versus -20.8% previously, with residential investment spending down -22.8% from -22.2% previously, and nonresidential fixed investment at -27.7% from -21.1%. Inventories subtracted $3.8 billion, vs. adding $9.7 billion previously, while net exports subtracted $11.4 billion vs. $19.8 billion previously.
U.S. initial jobless claims rose 8,000 to 652,000 in the week ended Mar. 21, vs. a revised 644,000 the week before (646,000 previously). And it compares to a relative high of 670,000 from the week ended Feb. 21, which was the highest since October, 1982, notes Action Economics. The 4-week moving average edged down to 649,000 from 650,000. Continuing claims rose yet again, however, rising 122,000 to a record 5,560,000 in the week ended Mar. 14, from a revised 5,438,000 (was 5,473,000).
The Conference Board's Leading Economic Index for the euro zone fell 0.3% in February to 92.9 points after a 0.9% rise in January. Meanwhile, a survey showed German consumer morale should fall slightly in April after a grim run of economic reports. Economists expect rising unemployment to hit spending in the next few months. French consumer confidence remained mired in gloom in March, with deep pessimism over the future standard of living overshadowing improved views on inflation, national statistics office INSEE said, while Italian business confidence fell for the tenth consecutive month to a new record low in March, below all forecasts, with shrinking order books and growing inventories providing no hope of a recovery any time soon.
British retail sales posted the lowest annual growth rate in February in more than four years, as heavy snowy and economic gloom kept consumers away from the shops.