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Stocks climbed to fresh 2009 highs on Tuesday as Wall Street’s recovery hopes were bolstered by two unlikely camps: cash-strapped consumers and the normally tight-lipped Ben Bernanke.
Today's Markets
The Dow Jones Industrial Average rose 56.61 points, or 0.59%, to 9683.41, the Standard & Poor's 500 added 3.29 points, or 0.31%, to 1052.63 and the Nasdaq Composite picked up 10.86 points, or 0.52%, to 2102.64. The consumer-friendly FOX 50 gained 1.66 points, or 0.22%, to 762.74.
Led by surging commodities and basic materials stocks, the latest wave of economic optimism was fueled by the biggest jump in retail sales in three years and the Federal Reserve chairman declaring the recession is over.
“There is this broadening sense that we are going to see significant improvement in growth and a recovery -- and sooner rather than later,” said Peter Kenny, managing director at Knight Capital Group.
That economic optimism pushed the markets into the green for the seventh day of the last eight, building on this summer’s huge surge off the March lows. Despite considerable fear that the typically-bearish month of September would halt the rally, the Dow and S&P 500 ended on Tuesday at their best levels since early October 2008.
“The bulls are clearly in control of this market. Until something comes up to derail the bullishness, you’re just going to continue to see buyers pour money into stocks,” said Michael James, senior equity trader at Wedbush Morgan Securities.
Caterpillar (CAT) and Alcoa (AA), two companies likely to benefit the most from a strong recovery, led the way up on the Dow, soaring 6% and 8% respectively. Conglomerate General Electric (GE) and chemical giant DuPont (DD) also closed sharply higher. The biggest drags on the benchmark index were its defensive plays, including discount retailer Wal-Mart (WMT) and drug maker Pfizer (PFE).
Underscoring investors’ increased risk appetite, the dollar tumbled to a nine-month low versus the Euro on Tuesday, sending gold to a new exchange record high and commodity-related stocks like U.S. Steel (X) surging. The basic materials sector was the biggest winner, jumping 2.2%.
Bernanke, Data Boost Stocks
The markets received a rhetorical lift from Bernanke, who after giving a speech said, “the recession is very likely over at this point."
“He’s a man who is very cautious in his commentary. He tends to really avoid extreme statements,” said Kenny. “If he’s saying we’re out of the recession, then we’re well out of the recession. This is the most positive he’s been.”
However, Bernanke also warned that “it’s still going to feel like a very weak economy for some time.”
Tuesday's economic data supported Bernanke’s bullish statement as the government said retail sales jumped 2.7% in August, thanks in part to the government’s “Cash for Clunkers” program. That represents the biggest jump since Jan. 2006 and easily exceeded the 2% rise economists had forecasted. Excluding autos, sales rose 1.1%, well above analysts’ view for a 0.4% rise.
Wall Street pays close attention to these figures as consumer spending accounts for more than two-thirds of the U.S. economy. Amid high unemployment and the weak housing market, many have been fearful weak consumer spending will limit the strength of an economic recovery. Discount retailers like Costco (COST) tumbled on the data as the markets bet luxury retailers like Saks (SKS) and Nordstrom (JWN) will outperform during a rebound.
Also on the economic front, the New York Fed said its Empire State Manufacturing Survey jumped from 12.08 last month to 18.88 in September -- the highest level since late 2007. The regional manufacturing index tumbled as low as -38.23 in March amid the depths of the recession.
Meanwhile, crude oil snapped its two-day losing streak, settling at $70.93 a barrel, down $2.07, or 3.01%. Gold rose $5.10 an ounce, or 0.51%, to close at $1,005.
Corporate Movers
Citigroup (C) is considering a secondary offering where the onetime Dow component would sell stock but also allow the Treasury Department to unload part of its stake too, FOX Business confirmed. It’s not clear when a secondary offering would occur but the move could allow the bank to get U.S. regulators out of its daily business. Citi's shares tumbled almost 9% on the news as the offering would dilute current shareholders.
Best Buy (BBY) disclosed a 22% slide in net income and a worse-than-expected non-GAAP profit of 40 cents a share. However, the electronics retailer boosted its fiscal-year earnings outlook and said its revenue rose 12% to $11.02 billion, beating the Street’s view.
Kraft (KFT) is mulling a sale of assets like Maxwell House and Oscar Mayer to help finance its proposed $16.7 billion stock-and-cash buyout of British candy company Cadbury (CBY), according to a published report. The value of Kraft’s bid has dropped in recent days as Kraft’s stock price has tumbled. The Dow component could beef up the cash portion of its bid possibly by selling certain assets, the New York Post reported. However, a Kraft spokeswoman told Dow Jones Newswires the company does not need to sell assets to finance the sale.
Kroger (KR) weighed in with worse-than-expected earnings as the grocery chain giant experienced tighter profit margins during its second quarter.Kroger, which owns grocery stores across the nation under a variety of names, said it earned 39 cents a share, missing the Street's view of 44 cents a share.
EBay (EBAY) saw its shares climb to 52-week highs after Piper Jaffray reportedly upgraded the stock to “overweight” on better customer feedback and a boost in Web traffic. According to Reuters, Piper Jaffray also lifted its price target on eBay from $19 to $30 and had previously rated the stock “underweight.”
Lexicon Pharmaceuticals (LXRX) surged 61% and hit a 52-week highs after the company said its diabetes treatment showed favorable results in an early-stage trial. Lexicon said in the wake of the promising Phase 1 study it has initiated a Phase 2 clinical trial of the drug candidate in patients with type 2 diabetes mellitus. The stock closed well off its highs.
Data Dump
On the inflation front, the Labor Department said producer prices rose 1.7% in August, much more than the 1% rise expected by economists. Much of that unexpected jump stemmed from an 8% rise in crude and energy prices.
The government said business inventories tumbled by 1% in July as businesses continued to deplete their supplies. Economists had expected a slightly more modest decrease of 0.9%.
Global Markets
European markets rallied across the board to fresh 2009 highs. The U.K.'s FTSE 100 rose 0.46% to 5042.13, France's CAC 40 advanced 0.58% to 3752.21 and Germany's DAX gained 0.16% to 5628.98.
In Asian markets, Japan's Nikkei 225 climbed 0.15% to 10217.62, Hong Kong's Hang Seng fell 0.31% to 20866.37 and China's Shanghai Composite rose 0.23% to 3033.73.
Stocks tumble amid investors’ worriesBernanke-Inspired Rally; Sixth Daily Gain for Dow
