NEW YORK (CNN/Money) - The major U.S. stock indexes jumped to their highest levels in more than four months Friday after data showing a sharp slowdown in job cuts signaled that the recession's worst days may be over.
Three days old, the new trading year is off to a strong start. The Dow Jones industrial average is up 2.4 percent in 2002 while the Nasdaq composite index sports a 5.6 percent gain.
Credit Friday's advance to news from the Labor Department, which said employers cut payrolls last month by the smallest amount since August.
Investors snapped up financial and industrial shares that Chuck Carlson, CEO of Horizon Investments, said are among the first to benefit from an improving economy.
Still, Carlson is cautious. He doubts that corporate profits will prove strong enough to justify the market's recent run.
"Valuations are getting stretched, especially in the technology sector," Carlson said. "There may be some recovery in the economy, but the notion that it will translate into a big jump in corporate profits - the jury is still out on that."
Elsewhere in the jobs reports, the unemployment rate rose to 5.8 percent, matching forecasts. The length of the average workweek increased as some employers ramped up production.
"This is a pretty good report, I thought, in terms of the economy getting better," Bill Dudley, economist at Goldman Sachs, told CNNfn's Market Call.
The jobs figures signaled that the steepest layoffs following the September terrorist attacks likely have passed, pleasing investors who have sent stocks higher during the last three months. A separate report measuring the service sector showed surprising strength last month.
Bond investors sold on the news, sending yields higher, in a bet that a recovering economy will push up inflation and interest rates.
The Dow industrials gained 87.60 points, or 0.9 percent, to 10,259.74, its best finish since Aug. 27. The Nasdaq rose 15.11, or 0.7 percent, to 2,059.38, its highest close since Aug. 3rd.
The Standard & Poor's 500 index rose 7.24, or 0.6 percent, to 1,172.51, sending it up 2 percent on the year.
Elsewhere, the Dow Jones transportation index surged more than 3 percent as money poured into the airline, trucking and railroad stocks likely to benefit from economic recovery.
More stocks rose than fell. On the New York Stock Exchange, advancing issues topped declining ones nearly 2-to-1 as 1.49 billion shares changed hands. Nasdaq winners beat losers by a 3-to-2 margin as 2.18 billion shares traded.
In the currency market, the dollar rose against the euro and fell versus the yen.
Job losses slow
The economy shed 124,000 jobs last month, less than half November's revised loss of 371,000 jobs. Still, more Americans are looking for work; the unemployment rate ticked up to a six-and-a-half year high.
Average hourly earnings gained 0.5 percent in a report Federal Reserve policy makers will parse before setting borrowing costs later this month.
"I think the Fed's going to be on hold at the next meeting," Mickey Levy, economist at Bank of America, told CNNfn's Before Hours, referring to the direction of interest rates.
Merrill Lynch economist Bruce Steinberg disagrees, forecasting another rate cut - the 12th in 13 months. In a note to clients, Steinberg said the data are "showing that we are still in a recession but that the worst is behind us."
Like the jobs report, manufacturing, construction spending and consumer confidence have shown surprising strength in recent weeks.
In the latest sign of stability, the Institute of Supply Management said Friday that its index measuring the service side of the economy rose to 54.2 in December, above forecasts, from 51.3 in November.
Stocks, meanwhile, rallied during the first three trading sessions of the year, possibly a meaningful development. Horizon's Carlson said that, since 1950, the market's direction during the first five sessions of the year has accurately presaged the rest of the year all but 11 times.
"There are some signs that the economy is not getting worse, in fact it is getting better," James Awad, chairman of Awad Asset Management, told CNNfn's Market Call.
As for the rising stock market, "the risk, of course, is that on a valuation basis - in the largest cap stocks - you're starting to get extended," Awad said.
Up, up and away
One of the Dow's biggest gainers, Boeing (BA: up $1.61 to $40.36, Research, Estimates), said it delivered 144 jets in the fourth quarter, boosting its total for the full year to 527. That figure, according to Reuters, was five more than it projected after the Sept. 11 attacks.
The gains spread to fellow Dow member and aerospace company United Technologies (UTX: down $0.18 to $65.82, Research, Estimates).
Financial stocks also powered the Dow. J.P. Morgan Chase (JPM: up $1.68 to $39.00, Research, Estimates), American Express (AXP: up $1.27 to $37.72, Research, Estimates) and Citigroup (C: up $0.95 to $52.00, Research, Estimates) all rose.
So did industrial and basic material companies International Paper (IP: up $1.24 to $41.94, Research, Estimates) and Caterpillar (CAT: up $1.53 to $53.86, Research, Estimates).
Among Friday's other gainers, meat processor Tyson Foods (TSN: up $1.04 to $12.54, Research, Estimates) raised its financial guidance, saying it may have earned as much as 36 cents a share in its fiscal first quarter ended last month. That's above the 25 cents per share consensus of analysts surveyed by First Call.
Merrill Lynch upgraded Starbucks (SBUX: up $1.69 to $22.11, Research, Estimates) after the coffee retailer said sales in its latest quarter topped analysts' forecasts.
But Equitable Resources (EQT: down $0.57 to $31.90, Research, Estimates), a Pennsylvania utility, warned that warm weather has lowered demand for energy enough to hurt quarterly profits.
Equitable joined telecom equipment maker Adtran (ADTN: up $0.47 to $28.02, Research, Estimates), systems developer Mercury Computer (MRCY: down $4.95 to $35.15, Research, Estimates) and online travel service Travelocity.com (TVLY: down $3.05 to $24.39, Research, Estimates) in saying results will fall short.
Energy company Halliburton (HAL: down $0.69 to $10.22, Research, Estimates), the most actively traded stock on the NYSE, denied rumors it has filled or will file for bankruptcy.
One of the NYSE's worst performers was Conseco (CNC: down $0.69 to $3.56, Research, Estimates). Salomon Smith Barney downgraded the insurance company to "avoid" from "underperform."
Abgenix (ABGX: down $1.98 to $29.70, Research, Estimates), a biotechnology company, said one of its key experimental drugs failed as a treatment for rheumatoid arthritis.
When it comes to the market, John Davidson, CEO and president of PartnerRe Asset Management, is encouraged by lower interest rates and energy prices, combined with falling business inventories and the stability of the housing market.
"I think we will have a positive year," Davidson told CNNfn's Before Hours. The stock market hasn't had one of those since 1999.
The market faces hurdles ahead. Companies next week may step up the pace of negative profit pre-announcements for the quarter that ended last month. The actual results won't be pretty. Corporate profits in the December quarter probably posted their fourth straight quarterly decline, analysts say. 
Click here to send mail to Jake Ulick
|
