By Peter McKay
A broad-based stock rally continued Monday afternoon following
rate-related comments from a central banker and strong housing data
that put investors back in the mood to bet aggressively.
Major indexes have trimmed their gains since hitting
late-morning highs, with many participants heading to the
sidelines. But the Dow Jones Industrial Average (DJI) has managed
to hold onto a triple-digit gain so far -- a welcome rebound from
its recent three-day slide.
The Dow, which was up about 177 points at its morning high, was
recently up 121 points, or 1.1%, at 10,439.16, on track for a new
13-month closing high. Twenty-eight of its 30 components posted
gains, with Alcoa Inc. (AA) and Merck & Co. (MRK) the only
exceptions, off about 0.3% each.
Monday's session has seen a resurgence of the so-called risk
trade in which investors put cash that was earning little interest
back to work in the financial markets. That strategy fell out of
favor late last week, fueling the stock market's three-day slide.
But traders and analysts expect it to play a key role on Wall
Street well into 2010, with interest rates in the U.S. likely to
remain near rock bottom.
"It's hard to fight the flood of liquidity that opens on this
market on any day when the dollar weakens," said Art Hogan, chief
market analyst at Jefferies & Co. "We saw things go back the
other way a little bit last week, but now those floodgates are back
open again."
The market drew early support from remarks by St. Louis Fed
President James Bullard, who said Sunday in an interview with Dow
Jones Newswires that the U.S. should continue buying
mortgage-backed securities past the first quarter of 2010, when
asset purchases are due to end.
Bullard's comments stood in contrast to remarks from the
European Central Bank last week and helped fuel the view that
policy makers in the U.S. will lag behind their counterparts in
other countries in raising interest rates and removing the massive
liquidity pumped into markets since last year to stimulate growth.
Reflecting that increasing divergence in interest-rate
expectations, the euro gained almost 1% from Friday, touching the
psychologically significant $1.50 level.
The U.S. dollar index (DXY) was recently down 0.7%.
The Standard & Poor's 500 (SPX) rose 1.1%, led by a 2.2%
gain in its telecommunications sector. Bellwether Sprint Nextel
Corp. (US-S) rose 4.5% as its pending purchase of Virgin Mobile USA
Inc. (VM) for $483 million neared completion, with a closing
expected Tuesday. AT&T Inc. (T), which is also a component of
the Dow, was up 2.4% following a Barron's story pointing out that
the carrier's shares have lagged that average recently. Verizon
Communications Inc. (VZ) was up 2.9%.
All the S&P's other categories were advancing as well, with
financials, technology, industrials, energy and utilities all
posting gains of more than 1% in recent action. The Nasdaq
Composite Index (RIXF) was up 1.1%. And the small-stock Russell
2000 (RUT), which tends to benefit at times when investors are
growing more aggressive about taking on risk, posted the strongest
gain of the major indexes, up 1.5%.
The market also got a boost Monday from data from the National
Association of Realtors, which said home resales increased by 10.1%
to a 6.10 million annual rate from 5.54 million in September.
Economists surveyed by Dow Jones Newswires expected a 2.3% increase
in sales during October. .
Some participants remained on the defensive Monday, including
Keith Wirtz, chief investment officer at Fifth Third Asset
Management in Cincinnati. "What we're having here is a skeptic's
rally," with many portfolio managers buying despite their
misgivings about the market's fundamentals, Wirtz said.
Wirtz's firm has been lightening its exposure to stocks and will
continue to do so through the end of 2009, except in a few sectors
such as energy, basic materials and technology, he said. Wirtz said
those categories are well-positioned to benefit from a return to
growth in the global economy.
Trading volume, which has been below average through most of the
month, was again light on Monday. Composite turnover in New York
Stock Exchange-listed companies recently hit 2.7 billion
shares.
In a note to clients, Miller Tabak strategist Peter Boockvar
said Monday's full-day volume could turn out to be the lightest of
the year, with many traders scaling back their activity following
last week's expiration of options contracts often used as a hedge
on stock holdings. The full-day low for 2009 so far is 3.6 billion
shares on Jan. 2.
Among stocks in focus, LDK Solar Co. (LDK) jumped nearly 7%
after the Chinese maker of solar wafers and modules posted a
surprise profit for the third quarter, breaking a string of three
consecutive quarterly losses. .
Deere & Co. (DE) rose 1.8% after being upgraded to
overweight from equal weight by Morgan Stanley analysts.
Oil futures were boosted by both the dollar's weakness and
rising tension over Iran's nuclear program. The oil-producing
nation launched a five-day air-defense exercise Sunday amid
continuing Western pressure to accept a nuclear-energy deal
negotiated last month with the aid of the International Atomic
Energy Agency.
Oil futures were recently up 73 cents to $78.20 a barrel in New
York, helping to boost the shares of energy producers. Dow
components Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) rose
1.8% and 2.6%, respectively.
Treasury prices were muted following well-bid auctions of
3-month and 6-month bills. But demand for two-year debt was weak,
pushing the two-year note down 1/32 to yield 0.739% in recent
action. The benchmark 10-year note was up 1/32 to yield 3.366%.