Stocks Gain As Economic Data Soothes Fears
The Wall Street Journal — September 1, 2010 — Investors bid up riskier assets Wednesday as the latest manufacturing data helped soothe fears over an economic “double dip.”
Treasurys fell as investors raced to snap up stocks, commodities and riskier currencies. The rally began early and strengthened on a surprisingly strong picture from the manufacturing sector, even as jobs data continue to signal a weak recovery.
The Dow Jones Industrial Average surged 238 points, or 2.4%, to 10252 in early afternoon trade, while the Standard & Poor’s 500-stock index added 2.8% to 1078 and the Nasdaq Composite rose 2.7% to 2171. The Dow Jones Transportation Average, seen as a leading indicator, gained 3.5%.
Treasurys sank in a broad sell-off, pushing the yield on the benchmark 10-year note temporarily over 2.6%.
Caterpillar surged 4.4% to lead Dow components as the global bellwether was cheered by signs of strength in Australia and China, in addition to strength on the domestic manufacturing front. Industrials and energy stocks were the strongest performers after U.S. manufacturing activity expanded for the 13th straight month, surprising economists.
“Investor sentiment was so negative that any flicker of light was going to move sentiment with quite a roar, and that’s what we got,” said Anthony Chan, chief economist at J.P. Morgan Private Wealth Management. “With the purchasing-managers index coming out of two largest economies in the world—China and the U.S.—coming in larger than expected, you can’t ignore that this is good news.”
Wednesday’s giddiness follows a dismal month that saw the Dow drop 4.3%, its worst August in nearly a decade.
The gains also came after a weak jobs report, which showed private-sector employment falling by 10,000 jobs, a surprise contraction that is the first in six months. Balancing that was a sharp drop in planned layoffs, to the lowest monthly total in a decade. Those jobs numbers, as well as initial jobless claims Thursday, will pave the way for Friday’s closely watched official monthly nonfarm-payrolls data, which include both private- and public-sector hiring.
Wednesday’s rallies began in Australia, where stocks gained 2.1% on better-than-expected gross domestic product numbers, continuing on to Europe, where major indexes in the U.K., Germany and France all packed on strong gains. The broader Stoxx Europe 600 index added 2.6%.
“If there are markets that are growing, U.S. companies can prosper, regardless of the domestic labor markets in the next few months,” said Jerry Webman, chief economist and senior investment officer with OppenheimerFunds.
Not everyone was convinced by Wednesday’s bump.
Seth Setrakian, partner and co-head of trading at First New York Securities, said that after such a weak August, investors were eager for any reason to push the market higher, and the better-than-expected economic data came at the right moment. “People were looking for an excuse to rally and they’re going to cite this,” he said.
“This is a trading market, and the intermediate trend is down,” said Carl Birklebach, chairman and CEO of Birklebach Investment Securities, who called the economic recovery “all hype, both from the government and from corporations.”
Auto makers fared well, despite sharp drops in new-vehicle sales at General Motors and Ford Motor. Ford gained 3.5% and Honda Motor added 2.4%, while U.S. shares of Magna International gained 4.9%.
Apple rose 3.1% as the closely watched tech giant unveiled several new initiatives.
On the deals front, Burger King jumped 14% after The Wall Street Journal reported the burger chain is in talks with private-equity firms about a possible sale, citing unnamed sources.
With the end of combat operations in Iraq, the president promised to focus most of his efforts on reversing the economy’s travails. Jonathan Weisman discusses. Also, Mark Hulbert discusses why September is typically is a bad month for stocks, and why this month will likely follow the pattern.
In the currency markets, the euro rose 0.9% to above $1.28. The U.S. Dollar Index, which tracks the performance of the greenback against a basket of six currencies, fell 0.8%. The Bank for International Settlements reported that daily turnover in the world’s foreign-exchange markets has soared to $4 trillion this year.
Commodity prices rallied, with October crude-oil futures gaining 3.5% to $74.43 a barrel, even as official inventory numbers showed crude stocks rising more than analyst expectations. Oil prices had tumbled in August amid growth concerns and unusually high inventory levels. Copper surged more than 3%.
