NEW YORK (CNN/Money) -
U.S. stocks rallied Wednesday, sending the Dow to its highest level in more than 2-1/2 years, as investors took comments from Fed chairman Alan Greenspan as a sign that a "Goldilocks economy" could be on its way back.
Comcast's uninvited bid for Disney also gave the market a lift.
The Dow Jones industrial average (up 123.85 to 10737.70, Charts) gained more than 1.1 percent and the Standard & Poor's 500 (up 12.22 to 1157.76, Charts) index gained nearly 1.1 percent, while the Nasdaq composite (up 14.33 to 2089.66, Charts) gained around 0.7 percent.
The Dow closed at its highest level since June 2001. The S&P 500 closed at its highest level since March 2002.
Stocks dawdled in the first few hours of trading, but shot higher following the release of Greenspan's semi-annual update on the economy and monetary policy to congress. Greenspan's report painted a picture of an economy that is growing strongly and is likely to create more jobs eventually this year and a Fed that will be "patient" with interest rates and not raise them for a while.
To some, this comes close to a "Goldilocks" environment, where growth is not too hot -- possibly generating inflation -- and not too cold -- possibly raising unemployment -- but is just right, namely, steady. This kind of environment was most recently associated with the late 1990's.
"I'm reluctant to revisit things like talk of the 'Goldilocks economy,' but what I think you did see the market react to is Greenspan outlining an environment that is balanced, but with a fairly strong upward bias," said Ned Riley, chief investment strategist at State Street Global Advisors.
Riley says that eventually, it will come to the point where "everyone agrees, thinks everything is great, and that's when investors need to get out." But he doesn't think the market is at that point yet. "There are still enough skeptics out there who think the ammunition will run out in the second half of the year to keep the rally going for the time being," he added.
The prepared speech to the House Financial Services Committee Wednesday marked the first day of the Fed chairman's two-day appearance on Capitol Hill. Thursday, Greenspan will speak to the Senate Banking Committee.
Greenspan noted Wednesday that "looking forward, the prospects are good for the sustained expansion of the U.S. economy." He also said the Fed can be patient about monetary policy, essentially repeating the central bank's statement after the last policy-setting meeting at the end of January.
At that time, a change in the Fed's language to "patient" with interest rates from low rates for a "considerable period of time" had spooked the markets, as it was taken to imply that interest rates might rise sooner than many on Wall Street had expected.
"His comments gave the markets a kick," said Donald Selkin, director of research at Joseph Stevens. "His comments after the last meeting caused a selloff and I think he wanted to put a more positive spin on things this time, but separate from the politics, the conditions for a strong market are there and you saw stocks respond."
Thursday also brings the release of the weekly jobless claims report and retail sales figures before the bell, as well as earnings from Dell (DELL: up $0.41 to $33.69, Research, Estimates) after the close.
Comcast eyes Disney
In the day's biggest corporate development, cable leader Comcast (CMCSA: down $2.70 to $31.23, Research, Estimates) made an unsolicited bid to buy Walt Disney (DIS: up $3.52 to $27.60, Research, Estimates) for $54 billion plus the assumption of debt after failing to engage Disney chief Michael Eisner in private discussions of a potential merger. The offer sent shares of Disney up 14.6 percent, and sent Comcast's stock 8 percent lower.
Shares of EchoStar (DISH: up $1.58 to $39.28, Research, Estimates), News Corp. (NWS: up $0.90 to $38.60, Research, Estimates) and other media companies gained on the news, as well.
Separately, Disney reported quarterly earnings ahead of schedule that beat expectations and rose from a year earlier.
In other news, shares of Dow component Alcoa (AA: up $1.85 to $37.39, Research, Estimates) gained 5.2 percent after Prudential Securities upgraded the stock to "overweight" from "underweight."
Treasury prices surged after the Greenspan speech, pushing the 10-year note's yield down to 4.01 percent from 4.11 percent late Tuesday. The dollar declined versus the yen and euro.
NYMEX light sweet crude oil futures rose 13 cents to settle at $34 a barrel. On Tuesday, OPEC surprised the market by saying it would cut production as a means of averting a big price decline. COMEX gold rose $3.70 to settle at $410.70 an ounce.
Market breadth was positive. On the New York Stock Exchange, where 1.69 billion shares traded, gainers beat losers by nearly 11 to five. On the Nasdaq, advancers edged decliners by nearly three to two on volume of 2.15 billion shares traded.