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World market indices rally on recovery expectations

07 October 2009 08:26 (UTC +04:00)

Baku- APA-Economics. Investors barreled into stocks for a second day, betting that corporate profits will surge as the global economy recovers.
The Dow Jones industrial average rose 132 points, bringing its two-day advance to 244, as major stock indicators rose more than 1 percent.
Investors’ show of confidence ahead of flood of corporate earnings reports came as Australia became the first major country to raise interest rates since the onset of the financial crisis last year. The move signals that policymakers see the country’s economy as strong enough to withstand higher borrowing costs. That touched off hopes that other economies may also be strengthening.
Australia’s decision also dented demand for the U.S. dollar, which, in turn, raised commodity prices. U.S. energy and materials stocks jumped as oil rose and gold reached a record high.
The upbeat tone among investors is a departure from recent weeks when disappointing reports on unemployment, manufacturing and consumer sentiment gave stocks their first back-to-back weekly drops since July. Investors seem inclined right now to grab hold of any good news they hear, and their shifting sentiment has led to some mild volatility including the surge upward this week.
The market’s climb comes as some investors ratchet up their expectations for companies’ earnings for the July-September quarter. Yum Brands Inc., parent of the Taco Bell, KFC and Pizza Hut chains, reported results after the closing bell that topped expectations. Aluminum producer Alcoa Inc. reports on Wednesday.
Phil Orlando, chief equity market strategist at Federated Investors in New York, said investors are raising their expectations for overall earnings because few companies have issued profit warnings since the quarter’s end.
"We’ve gone through confessional season and we haven’t had a peep from anyone," he said, referring to companies that would try to prepare investors for disappointment. "It’s just crickets and tumbleweed throughout Wall Street because companies are going to beat."
According to preliminary calculations, the Dow rose 131.50, or 1.4 percent, to 9,731.25 after rising 112 Monday. It was the Dow’s biggest gain since Aug. 21 and leaves the index fewer than 300 points from the psychological benchmark of 10,000.
The Standard & Poor’s 500 index rose 14.26, or 1.4 percent, to 1,054.72, while the Nasdaq composite index rose 35.42, or 1.7 percent, to 2,103.57.
Stocks jumped Monday on news that the U.S. service industry grew for the first time in a year. Upbeat comments about the nation’s largest banks also drew buyers, as did a drop in the dollar.
Bond prices fell, sending the yield on the benchmark 10-year Treasury note up to 3.26 percent from 3.23 percent late Monday.
Crude oil rose 47 cents to settle at $70.88 per barrel on the New York Mercantile Exchange, while gold rose above $1,040 an ounce.
Stock investors cheered the drop in the dollar because it boosts corporate profits by making U.S. goods cheaper to overseas buyers. Companies can also get a bump in profits when they convert sales made in foreign currencies to dollars. The dollar has been falling for months so that added to expectations for corporate profit reports.
"The reality is that a weak dollar right now is beneficial to us because it’s driving export volumes to foreign economies that are doing better and it’s going to result in currency gains," Orlando said.
The market lost about 6 percent in recent weeks, following a huge rally of 50 percent since March, as investors questioned whether they had been too quick to place bets on a rebound in the economy. The same concerns emerged from mid-June to mid-July, when stocks fell 7 percent before companies turned in surprisingly strong profits.
Metals and mining and energy stocks rose Tuesday as commodities surged.
Alcoa rose 47 cents, or 3.5 percent, to $13.89. Barrick Gold Corp. rose $1.93, or 5.2 percent, to $38.84, while Newmont Mining Corp. jumped $3.01, or 7 percent, to $46.21. Oilfield services company Schlumberger Ltd. rose $1.28, or 2.2 percent, to $59.24.
David Kelly, chief market strategist at J.P. Morgan Funds, said the stock market has room to advance further despite its already huge climb since March. Stocks are still down from their peak two years ago.
Kelly said the long-term move in the stock market should be upward as the economy improves and problems like unemployment slowly get better, a process that he expects to take years.
"As the economy gradually pulls itself back together and we march back to full employment the stock market will reflect that," Kelly said.
Four stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.2 billion shares compared with 1.1 billion traded Monday.
The Russell 2000 index of smaller companies rose 10.87, or 1.8 percent, to 601.98.
Britain’s FTSE 100 gained 2.3 percent, Germany’s DAX index rose 2.7 percent, and France’s CAC-40 gained 2.6 percent. Japan’s Nikkei stock average rose 0.2 percent. Source: AP