Wall Street soared higher today after a better-than-expected reading on the gross domestic product and a drop in jobless claims gave investors some reassurance that the economy is holding up.
The Dow Jones industrial average jumped more than 200 points.
A decline in oil prices also appeared to add force to the rally in stocks. But trading volume was light again ahead of the Labour Day weekend, a condition which can skew price moves.
The Commerce Department’s report that gross domestic product rose at an annual rate of 3.3% for the April-June period helped punctuate a week of generally upbeat economic readings which have left guarded investors somewhat optimistic. The weaker dollar helped boost US exports, which pushed GDP growth beyond the government’s initial estimate of 1.9% as well as economists’ forecast of 2.7%.
The increase also came as the government handed out rebate cheques to taxpayers. It marked the economy’s best performance since the third quarter of last year, when GDP rose at a 4.8% pace.
Investors are watching GDP, considered the best barometer of the economy’s well-being, to look for signs that growth is picking up after being pounded by housing woes and a debilitating credit crisis. The economy grew at a weak rate of 0.9% in the first quarter after shrinking in the last three months of 2007.
Also today, the Labour Department said the number of newly laid-off people seeking jobless benefits fell for the third straight week. The number of claims dropped to a seasonally adjusted 425,000, down 10,000 from the previous week. That was slightly better than the 427,000 expected by analysts surveyed by Thomson/IFR.
But some economists consider claims above 400,000 an indicator of a slowing economy. Companies have cut jobs every month this year as they grapple with high energy costs and tighter credit.
The Dow rose 212.67, or 1.85%, to 11,715.18, bringing its three-day advance to nearly 330 points. Still, for the week, the Dow is essentially flat after a big decline on Monday on credit worries.
Broader stock indicators also rose today. The Standard & Poor’s 500 index advanced 19.02, or 1.48%, to 1,300.68, and the Nasa composite index rose 29.18, or 1.22%, to 2,411.64.
Bonds fell as investors moved into stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.79% from 3.77% late yesterday. The dollar rose against other major currencies, as did gold prices.
“This is an environment in which we’re likely to get a lot of head-fakes both on the upside and the downside,” said Bill Urban, principal with San Francisco-based Bingham, Osborn & Scarborough, referring to economic data.
He noted that the initial reading on the fourth quarter last year had been positive before revisions revealed the economy contracted.
“This is just sort of data that trickles out that can be very positive one day and negative the next. We don’t yet think it signals a trend,” he said.
Beyond economic reports, investors are watching oil prices as Tropical Storm Gustav churns toward the Gulf of Mexico on a course which could collide with oil and gas platforms. Oil rose in the early going on concerns about the storm but a strengthening dollar upended oil’s climb.
Light, sweet crude fell 2.56 dollars to settle at 115.59 dollars on the New York Mercantile Exchange.
The decline in oil made energy stocks one of the session’s few areas of weakness.
Devon Energy Corp. fell 3.62 dollars, or 3.4%, to 103.16 dollars, while Hess Corp fell 1.61 dollars, or 1.5%, to 105.53 dollars.
Financial shares advanced after MBIA Inc agreed to reinsure nearly 200 dollars billion of municipal bonds backed by FGIC Corp.
The deal between the two bond insurers led to some hopes that the troubled credit market is beginning to right itself. MBIA jumped 4.17 dollars, or 35%, to 16.15 dollars. Other bond insurers also rose, with Amfac Financial Group Inc climbing 2.18 dollars, or 42%, to 7.42 dollars.
Government-chartered mortgage companies Fannie Mae and Freddie Mac rose for a fourth straight session after Fannie Mae announced a management shake-up and analysts raised further doubts that a government bailout of the companies is in the offing; such a move could wipe out shareholder equity. Fannie Mae rose 1.47 dollars, or 23%, to 7.95 dollars, while Freddie Mac rose 53 cents, or 11%, to 5.28 dollars.
Among retailers, Tiffany & Co jumped 4.24 dollars, or 11%, to 43.85 dollars after reporting that its second-quarter profit doubled as sales rose by double-digit percentages in Asia and Europe.
Zale Corp forecast a fiscal 2009 profit which topped what Wall Street had been expecting. The speciality jeweller rose 4.77 dollars, or 21%, to 27.92 dollars.
Investors have been looking at retailers’ results for insights into the health of consumers, whose spending accounts for more than two-thirds of US economic activity. Several upbeat reports yesterday from retailers helped buoy Wall Street’s confidence in the economy.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 946.2 million shares compared with 820.6 million shares yesterday.
The Russell 2000 index of smaller companies rose 14.84, or 2.02%, to 747.79.