Dow and S&P Close at New '09 Highs
Saturday, August 8, 2009
Wall Street set a new high for the year Friday with investors cheering the government's latest labor report as evidence that the recession could be coming to an end soon.
The Dow Jones industrial average is trading at its highest level since November, while the Standard & Poor's 500-stock index has climbed to its highest level since October. The gains on Friday were broad-based, but the financial sector led the rally. J.P. Morgan Chase's stock was up about 4 percent, while American Express' gained about 4.4 percent.
Breaking two days of losses, the Dow, an index of blue-chip stocks, climbed 113.81, or 1.2 percent, to 9370.07, while the broader S&P gained 13.40, or 1.3 percent, to close at 1010.48. The tech-heavy Nasdaq gained 27.09, or about 1.4 percent, to 2000.25. All three indexes closed in positive territory for the fourth week in a row.
Investors have been clinging to signs that the economic downturn is easing, and their hopes were stoked Friday by a Labor Department report showing that non-farm payrolls fell by 247,000 in July, compared with a drop of 443,000 in June. The unemployment rate dipped to 9.4 percent from 9.5 percent the previous month. Both figures were far better than many analysts were expecting.
"It all starts and ends with jobs," said James Cox, managing partner at Harris Financial Group in Richmond.
The unemployment rate could still reach 10 percent this year, but it seems less likely to top it, Cox said. And any sign that the recession is ending puts Wall Street on track to return to its pre-financial crisis levels by the end of the year, he said. "I think we're safe up until then, and then we level off and go into a stage of slow growth," he said.
Investors have also found renewed confidence in an earnings season that was not as dismal as some had expected. Even American International Group, the bailed-out insurance giant, rallied 20 percent to $27.14 a share Friday after reporting its first profit since 2007.
Generally, corporations have been beating profit expectations by slashing costs, even as their revenue remained weak, analysts said. Analysts polled by Thomson Reuters had forecast that companies on the S&P 500 would report a 31 percent drop in profitability during the second quarter. Now that most of the companies have reported results, the forecast has been raised to a 28.3 percent drop in quarterly profits.
"Earnings season was good, analysts had set a pretty low bar and companies have been aggressive in cutting costs," said J. Michael Gibbs, director of equity strategy at Morgan Keegan.
But this rally could be reaching its peak, analysts said. A bumpy and slow recovery could send stocks tumbling again, they said.
"I think the market is likely to do fairly well over the next year," said Sam Stovall, chief investment strategist at Standard & Poor's Equity Research. "But in the near term, I am a bit cautious because I think the market will have to digest some of these gains."