S&P 500 hits five-and-a-half-year high
Tech-fueled Nasdaq composite leads advance, as Wall Street restarts recent rally after two down sessions; S&P closes at highest point since Feb. 2001
NEW YORK (CNNMoney.com) -- Stocks rallied Monday, with the S&P 500 closing at a five-and-a-half-year high, as investors bet that the slowdown in the economy and pullback in energy prices means the Federal Reserve won't lift interest rates again anytime soon.
The Nasdaq composite (up 30.14 to 2,249.07, Charts) added nearly 1.4 percent, according to early tallies. The tech-fueled index had been on both sides of unchanged in the morning, before moving higher at midday.
The Dow Jones industrial average (up 67.71 to 11,575.81, Charts) added 0.6 percent, ending within 150 points of its all-time high of 11,722.98, hit on Jan. 14, 2000.
The Standard & Poor's 500 (up 11.59 to 1,326.37, Charts) index added 0.9 percent and knocked out its 2006 high from May, closing at its best point since Feb. 2001.
Treasury prices rose, lowering the corresponding yields; the dollar was mixed versus other major currencies.
Stocks swayed on both sides of unchanged in the morning as investors eyed the weak housing report and used a slide in commodity prices as a reason to take profits off the underlying oil and gold stocks.
But the market stabilized near midday and shot higher in the afternoon.
Stocks had risen on and off throughout the summer on bets that the economy is heading for a slowdown, not a recession. The rally hit a roadblock late last week in a brutal two-day sell-off but seemed to resume Monday afternoon.
Overall, the message of the market seems to be that the Fed is going to start cutting interest rates early next year, said Hugh Johnson, chief investment officer at Johnson Illington Advisors. Such a move would help ensure a so-called soft landing rather than a recession, would help corporate profits and is therefore fueling a rally right now, he said.
"I think generally speaking, the economic and inflation background is telling us that the Fed is in a position where they are going to have to cut interest rates," he said, citing the steep decline in commodity prices of late, the moderate reads on inflation and the collapse in the housing market.
Although Federal Reserve members have continued to say publicly that they are concerned about inflation and may have to raise rates again, the financial markets see it differently, he added.
On Monday, Dallas Federal Reserve Bank President Richard Fisher, speaking in Mexico, reiterated this same rhetoric, saying that a slowing economy will take the edge off inflation but that if this proves not to be true, the Fed will take action. Fisher is not a voting member of the Fed's policy-setting committee.
Even with positive sentiment about the Fed infusing the market, stocks are bound to be volatile in the short term, particularly as the Dow flirts with all-time highs and the S&P 500 drifts near multiyear highs.
Certainly this week trading is likely to be choppy as investors wait for anticipated economic reports, including Friday's personal income and spending readings and the reports' inflation component, the PCE deflator.
"I think this is going to be a very important week for the market in determining whether we hold this uptrend we've seen since July," said Barry Hyman, equity strategist at EKN Financial Services.
Existing home sales fell in August, according to a report released Monday morning, in the latest sign that the housing market is still cooling. The decline for the month was not as steep as economists had predicted but nonetheless showed continued erosion in the market.
Oil and gold prices had fallen all morning, dragging down oil and gold stocks and funneling money into technology and other sectors.
Tech continued to flourish in the afternoon, even as oil and gold prices snapped back after several down days.
Applied Materials (up $0.51 to $17.35, Charts), Oracle (up $0.43 to $17.97, Charts), Juniper Networks (up $0.69 to $16.86, Charts), Intel (up $0.34 to $19.41, Charts) and Microsoft (up $0.29 to $26.95, Charts) were among the tech stocks rising.
Intel and Microsoft are Dow components, and the blue-chip indicator was broadly positive. Twenty-six out of 30 stocks rose, including Caterpillar (up $1.56 to $64.33, Charts), AT&T (up $0.59 to $33.49, Charts) and AIG (up $0.95 to $66.00, Charts).
A notable Dow decliner was Altria (down $5.26 to $77.06, Charts), which slumped 6.4 percent. The parent of Philip Morris tumbled after a federal judge on Monday said a potential $200 billion lawsuit against tobacco companies can proceed under class action status. Reynolds American (down $2.27 to $59.75, Charts) sank, too.
Hewlett-Packard said late Friday that Chairwoman Patricia Dunn resigned effective immediately amid her role in the company's boardroom leak investigation scandal.
Dunn, who initially had said she would step down in January, will be replaced by Chief Executive Mark Hurd. Dunn is also leaving HP's board. HP (up $0.60 to $35.71, Charts) shares rose 1.7 percent Monday.
Market breadth was positive. On the New York Stock Exchange, winners topped losers 11 to 5 on volume of 1.75 billion shares. On the Nasdaq, advancers beat decliners 3 to 2 on volume of 1.87 billion shares.
U.S. light crude oil for November delivery rose 90 cents to settle at $61.45 a barrel on the New York Mercantile Exchange. Earlier, crude had fallen to $59.65, its lowest level in more than six months.
COMEX gold for December delivery rose 50 cents to $595.50 after slumping through the morning.
Treasury prices rose anew, building on the recent rally, lowering the yield on the benchmark 10-year note to 4.54 percent from 4.59 percent late Friday. Bond prices and yields move in opposite directions.
The recent decline in bond yields has added to bets that the Federal Reserve is unlikely to boost interest rates again any time soon.
In currency trading, the dollar gained versus the euro and weakened slightly versus the yen.