Market Snapshot

Stocks Rally, with Dow Back Above 10,000


U.S. stocks closed sharply higher Thursday, with the Dow industrials finishing the session above 10,000. The market was buoyed by positive economic reports ahead of Friday's U.S. employment data. Investors hope Friday's data will show October was a good month for the economy.

On Thursday, the 30-stock Dow Jones industrial average finished higher by 203.82 points, or 2.08%, at 10,005.96. The broad Standard & Poor's 500-stock index was up 15.88 points, or 1.52%, at 1,062.38. The tech-heavy Nasdaq composite index gained 45.40 points, or 2.21%, to 2,100.92.

On the New York Stock Exchange, 25 stocks were higher in price for every five that declined. Breadth on the Nasdaq was 21-6 positive. The technology, industrial, and basic materials sectors were showing strength Thursday.

Treasuries eased after the FOMC's decision Wednesday to leave rates unchanged at 0%-0.25% and maintain stimulus plans. The U.K. boosted its economic stimulus, while the European Central bank left rates unchanged.

The dollar index was higher. Gold futures were also higher. Crude oil futures were lower.

Traders were bracing for Friday's October nonfarm payrolls report. Economists expect the U.S. economy to have shed 173,000 jobs in October, vs. a decline of 263,000 in September. The unemployment rate is expected to tick higher to 9.9%, from 9.8%.

Better than expected economic data gave indexes a lift Thursday. Weekly initial jobless claims fell 20,000 to 512,000 for the week ended Oct. 31, while continuing claims fell 68,000 to 5,749,000. Meanwhile, third-quarter nonfarm productivity soared by a more than expected 9.5%.

Equities were also supported Thursday by Cisco Systems (CSCO) earnings release, which came in better than expected and was accompanied by a $10 billion boost to its share buyback program.

Costco Wholesale (COST) reported a 5% increase in sales in October.

The tech sector benefited from the gain in Research In Motion (RIMM) shares after the BlackBerry maker established a $1.2 billion share buyback plan.

Richard Bove, the Rochdale Securities analyst who recommended selling Lehman Brothers Holdings four months before it collapsed, said Thursday that earnings at U.S. banks will begin to recover in the second half of 2010 and triple within three years, according to a Bloomberg News report. Lenders have raised the level of cash on their balance sheets to a level where they don't face the same risks of collapse that they did a year ago, he said.

"Getting another 100 percent out of these stocks from this level is not as big a move as one might think given where they've fallen from," Bove said in a telephone interview. On Thursday, the Labor Department said initial claims for jobless benefits fell to 512,000 last week, the lowest level since January. Economists had expected 523,000 new claims.

The report offered investors fresh hope that the government's monthly report on employment Friday may come in better than expected. Economists expect the unemployment rate to have risen to 9.9% in October.

Rising unemployment is one of the economy's biggest obstacles to sustained growth. Consumer spending, which is a major component of economic activity, will be sluggish so long as job losses remain high.

U.S. nonfarm productivity growth rose at a torrid 9.5% clip in the third quarter, the fastest pace in six years and much higher than economists had expected. It follows a revised 6.9% rate of growth in the second quarter (from 6.6%).

"Obviously cost cutting and layoffs through the recession have kept productivity rising at very robust rates," said Action Economics analysts in a website posting Thursday.

Mixed data have made it difficult for investors to get a sense of where the economy is headed, leading to increasingly choppy stock trading. The Federal Reserve on Wednesday described an improving economy, but also said it would keep interest rates low for "an extended period" to help stimulate growth.

Low interest rates have one of the drivers in the stock market's more than 50% gain since March, encouraging investors to search for assets with higher yields than cash. But investors worry that the Fed's pledge to keep rates low for some time signals that the central bank believes the economic recovery is fragile.

"The Fed did lay out some guideposts yesterday, and indicated they would leave rates low as long as there were 'low rates of resource utilization, subdued inflation trends, and stable inflation expectations'," said Action Economics. "We're not as sanguine as the Fed is regarding inflation expectations given the run up in gold and other commodity prices, and widening TIPS spreads."

The U.S. Department of Justice filed criminal charges against 14 people Thursday for their alleged involvement in insider trading in the hedge-fund industry. The charges involve current and former employees at Galleon Group, law firm Ropes & Gray and Incremental Capital, and primarily involve insider trading activities involving several merger and acquisitions. The complaint alleges former Galleon and Shottenfeld employee Zvi Goffer, and at least six other defendants knowingly conspired to defraud, make untrue statements and omit facts, as well as engage in fraudulent and deceitful acts.
William_andrews
Andrews is managing editor of the Investing Channel for BusinessWeek.com

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