Wall Street rallied today after the US government’s jobless claims data and Ford Motor’s first-quarter results helped reinject some optimism about the economy into the market.
The Dow Jones industrial rose more than 80 points as investors focused on the Labour Department data showing weekly unemployment claims dropped and on Ford’s stronger-than-expected earnings.
The news allowed investors to look past the Commerce Department’s report that new home sales fell in March to the lowest level in more than 16 years, a sign that the housing slump isn’t close to an end.
Investors were also able to set aside any concerns about another drop in factory orders for big-ticket manufactured goods and weak forecasts from Amazon.com and Starbucks. Meanwhile, oil and other commodities prices fell as the dollar rose to its highest level against major currencies since January, which also helped boost stocks.
Sellers held sway early in the session, sending the Dow down nearly 57 points, after the home sales report. The data appeared to stir concerns that the hangover from the housing bubble would remain an intractable obstacle for the economy. But as the session wore on, the market righted itself, perhaps because there were no real surprises in the day’s negative news.
John Merrill, chief investment officer at Tanglewood Capital Management in Houston, said investors are seeing confirmation of many of the economic themes that have played out in recent months, with weakness in the financial, homebuilding and automotive sectors and relative strength elsewhere.
“The earnings picture is not so bleak as people though it was going to be,” he said. “There’s been so much talk of the spillover from the credit crunch and homebuilding into the real economy and that just doesn’t seem to have happened.”
The Dow rose 85.73, or 0.67%, to 12,848.95.
Broader stock indicators also gained. The Standard & Poor’s 500 index rose 8.89, or 0.64%, to 1,388.82, and the Nasdaq composite index advanced 23.71, or 0.99%, to 2,428.92.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 1.45 billion shares.
Light, sweet crude fell 2.24 to settle at 116.06 on the New York Mercantile Exchange, while gold prices fell. The decline in commodities was welcome. Rising oil prices in recent months – and a string of fresh highs the past few weeks - have compounded concerns about inflation and difficulty for the consumer.
The Labour Department’s report that claims for unemployment benefits declined by 33,000 last week to 342,000 came as a surprise after economists predicted claims would rise by 3,000. The notion that unemployment might be contained appeared to cap some concern about the economy. With consumer spending accounting for about 70% of US economic activity, a rise in unemployment could dent people’s willingness to reach into their wallets.
But unwelcome news came from the Commerce Department, which said new home sales fell by 8.5% in March to a seasonally adjusted annual rate of 526,000 units - the slowest pace since October 1991. Also, the median price of a new home showed the sharpest year-over-year decline in nearly four decades.
Moreover, orders to factories for durable goods – big-ticket items like refrigerators, cars and computers – fell for a third straight month in March. This marks the longest sustained pullback since the 2001 recession.
Amazon had worried investors over the strength of its profit margins, while Starbucks warned that its second-quarter profit will likely fall short of Wall Street’s expectations because of weak consumer spending.
Their forecasts, delivered after the closing bell yesterday, touched off unease over the prospects for the consumer. Amazon fell 3.31, or 4.1%, to 77.69, while Starbucks dropped 1.86, or 11%, to 15.99.
However, Ford reported a 100 million profit in the first quarter after strong results from Europe and South America helped make up for a slower US economy. It was the first profitable quarter for the number two US-based carmaker since the second quarter of 2007. Ford rose 88 cents, or 12%, to 8.40.
3M – the maker of Scotch tape and Post-It notes – fell 1.50 to 79.13 after reporting its first-quarter profit fell 28% from a year earlier, when it benefited from a gain on the sale of one of its branded pharmaceutical business in Europe.
Motorola slid 30 cents, or 3.1%, to 9.25 after reporting that its first-quarter loss widened following a 39% decline in its mobile business.
The Russell 2000 index of smaller companies rose 8.96, or 1.27%, to 717.07.