Stocks spike on recovery hopes
Optimism from Fed chief Bernanke and jump in existing home sales propel Wall Street to fresh 2009 highs.
NEW YORK (CNNMoney.com) -- Stocks surged Friday, with the Dow, Nasdaq and S&P 500 all ending at fresh 2009 highs, after Fed chief Ben Bernanke said the economy is near a recovery and existing home sales posted their biggest jump in two years.
The Dow Jones industrial average (INDU) gained 156 points, or 1.7%, closing at the highest point since Nov. 4. The S&P 500 (SPX) index added 19 points, or 1.9%, closing at the highest point since Oct. 6.
The Nasdaq composite (COMP) rose 31 points, or 1.6%, ending at the highest point since Oct. 1.
Stocks have managed to rally in the last week, despite light trading volume and some worries about the impact of a potential economic slowdown in China. The advance got an additional leg up Friday after the economic news.
In particular, investors welcomed a report that showed existing home sales jumped for the fourth month in a row, rising well beyond forecasts.
"It was basically the highest level in two years and higher even than a year ago before the whole financial crisis, pre-Lehman," said Stuart Hoffman, chief economist at PNC Financial Services Group.
He said it is notable that economic indicators seem to be getting back to levels prior to last September, when the collapse of Lehman Bros. exacerbated an already brewing financial market meltdown.
"The report is basically telling us that the housing market has hit bottom," Hoffman said.
Gains were broad-based, with 29 of 30 Dow shares rising, led by Chevron (CVX, Fortune 500), Exxon Mobil (XOM, Fortune 500), Boeing (BA, Fortune 500), United Technologies (UTX, Fortune 500), IBM (IBM, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Caterpillar (CAT, Fortune 500) and 3M (MMM, Fortune 500).
Since hitting a more than 12-year low in early March, the S&P 500 has gained more than 50% as investors have moved out of panic mode and into a sense of cautious optimism.
That optimism is likely to sustain gains in the short term, as it enables investors to draw more cash out of money market funds and put it to work in riskier assets, said Mark Travis, president and CEO of Intrepid Capital Funds.
"We've had an awfully nice run since March and there's still enough skepticism to keep us moving higher," Travis said. "Having said that, prices are not as attractive as they were in March and historically, there's often a bigger selloff."
Housing: Sales of existing homes spiked 7.2% in July versus June and 5% versus a year ago.
Existing home sales for July rose at a 5.24 million unit annualized rate from a 4.89 million unit annualized rate in June, the fastest monthly pace in two years. Economists surveyed by Briefing.com expected sales to rise at a 5.1 million unit annual rate.
In other economic news, the number of states showing a drop in the unemployment rate tripled in July from June levels, according to a government report released Friday.
Bernanke: The Fed chief said the U.S. economy is on the cusp of a recovery, speaking at the Kansas City Fed Economic Symposium in Jackson Hole, Wyo. Bernanke said that the pace of the recovery will be slow and that unemployment will remain high.
Hoffman said the speech showed the significance of the coordinated actions taken by the Fed and Treasury and central banks around the world to stem the financial meltdown.
"The recovery is going to be moderate, but without all the actions taken over the last year, I don't think we'd be talking about the economy stabilizing right now," he said. "We'd be talking about how the recession has no end in sight."
Company news: Gap (GPS, Fortune 500) reported higher quarterly earnings that topped forecasts in a report released late Thursday. But the clothing retailer also said sales fell from a year ago. Shares gained 3%.
Market breadth was positive and trading volume was light. On the New York Stock Exchange, winners beat losers by four to one on volume of 1.48 billion shares. On the Nasdaq, advancers topped decliners by over two to one on volume of 2.28 billion shares.
World markets: In overseas trading, European markets gained. Asian shares ended mixed, with the Chinese market higher and the Japanese market lower.
Oil: U.S. light crude oil for October delivery settled up 98 cents to $73.89 a barrel on the New York Mercantile Exchange, a 10-month high.
Bonds: Treasury prices tumbled, raising the yield on the benchmark 10-year note to 3.57% from 3.42% Thursday. Treasury prices and yields move in opposite directions.
Other markets: COMEX gold for December delivery rose $13.50 to $955.20 an ounce.
In currency trading, the dollar fell versus the euro and gained against the Japanese yen.