A steep drop in oil prices gave Wall Street a big rally today, propelling the Dow Jones industrials up more than 160 points and giving the major indexes one of their best days of 2004.
The buying took off immediately after the Energy Department reported an increase in distillate reserves – heating oil and other derivative products – of 2.3 million barrels, far higher than Wall Street expected.
Gasoline and crude inventories also rose substantially.
That triggered the largest single-day decline in crude oil futures in more than three years. The price of a barrel of light crude plummeted 3.64 to settle at 45.49, its lowest level since September 16, on the New York Mercantile Exchange.
Stocks climbed steadily through the session as oil prices tumbled.
“Oil futures go down, stocks go up. I think that will be a pattern for a long time, and the good news is that if we keep getting inventory reports like this, oil prices will be ready for a big correction downward,” said Brian Belski, market strategist at Piper Jaffray.
“Overall, this market has clearly turned to a growth mode over the past few months, and should continue to grow.”
The Dow Jones industrial average rose 162.20, or 1.56%, to 10,590.22.
It was the third-largest single-session point gain of 2004, and the Dow’s best close since March 5.
Broader stock indicators also made major gains. The Standard & Poor’s 500 index was up 17.55, or 1.5%, at 1,191.37, its best close since August 7, 2001.
The Nasdaq composite index gained 41.42, or 1.98%, to 2,138.23 for its best closing since January 26.
The good news on oil powered a rally that started with positive economic data issued before the session.
The Commerce Department reported a 0.7% rise in consumer spending in October, a better-than-expected showing and welcome news after a mediocre start to the holiday shopping season.
Consumer incomes, considered a key barometer of future spending, also rose 0.6% for the month.
Wall Street also welcomed the latest reading of the Institute for Supply Management’s manufacturing index for November, which measures the nation’s industrial activity.
The index came in at 57.8, up from 56.8 in October and better than the 57 reading Wall Street expected.
November marked the 18th straight month of growth for industrial activity.
“The personal income and spending numbers were very solid across the board, and we’ve been looking for these kind of numbers for some time. It’s nice to see them right around the holiday season,” said Brian Pears, head equity trader at Victory Capital Management in Cleveland.
“The ISM numbers were OK, and with oil on top of that, we’ve seen a big move upward, and a big move to high volatility stocks that could bring big returns before year’s end should this rally continue.”
The dollar was again a concern, but was generally overlooked by investors in favour of the strong economic data.
The dollar fell to a 12-year low against the pound, while the euro continued its record-setting gains against the greenback.
Merger activity dominated company news, with Wellpoint Health Networks successfully completing its 16.5 billion merger with Anthem, creating the US’s largest health insurer. Shares of the merged company, which will go by the name Wellpoint and trade under WLP, were up 7.77 at 109.10.
Blockbuster rose 45 cents to 8.93 after it said it was willing to raise its takeover bid for rival video rental chain Hollywood Entertainment Corp above its original 11.50 per share offer. Hollywood gained 24 cents to 12.93 on the news.
Dow component Pfizer climbed 46 cents to 28.23 after it said it would meet its 2004 profit targets, but stood to lose 14 billion in revenues over the next three years as patents on some of its products expire.
Cigna also issued projections for future profits, saying better-that-expected results in its health care business allowed the insurer to raise its profit targets for 2004 and 2005. Cigna surged 5.78 to 75.80.
Advancing issues outnumbered decliners by nearly 5 to 2 on the New York Stock Exchange, where volume was heavy.
The Russell 2000 index of smaller companies was up 9.91, or 1.56%, at 643.68.