Positive economic reports lead stocks to 126 point surge
The Dow Jones industrial average ($INDU) rose 1.23%, to 10,471.58. The Standard & Poor's 500 index ($INX) rose 13.23, or 1.21%, to 1,108.86, while the Nasdaq ($COMPX) composite index rose 31.21 or 1.46%, to 2,175.81.
The markets got a boost on manufacturing news from the Institute of Supply Management which said its index of U.S. factory activity slipped to 53.6 in November from 55.7 in October. While the numbers were lower than expected, they indicated that the economy was still expanding, although at a slower pace. And with new manufacturing orders rising to 60.3 in November from 58.5 in October, most market watchers are optimistic that production will improve going forward.
"The ISM was disappointing, but it still showed growth in manufacturing," said John Stoltzfus, senior market strategist Ticonderoga Securities.
Stoltzfus said the markets rallied because economic news encouraged traders that conditions were improving around the globe. The ISM also reported manufacturing gains in China, and coupled with the fact that the Australian Central Bank raised interest rates for the third consecutive month to 3.75% to temper economic growth, "It's an indication that the economies in that region are coming back, not only in Australia, but its positive for China and China's trading partners."
But news reports that Dubai's debt crisis was not as bad as feared was perhaps the biggest factor removing market uncertainty which allowed the rally to take off. Investors were satisfied that there would be little or no contagion from the debt problems afflicting Dubai World and its property arm Nakheel as it revealed more details about its plans to restructure $26 billion of debt after asking for a six-month delay on debt payments.
Still more positive news stimulated the markets as the National Association of Realtors reported that its Pending Home Sales Index rose for the ninth month in a row in October to its highest level since 2005. The index jumped to 114.1, gaining a better than expected 3.7% primarily due to a slight increase in housing construction and buyers flocking to use the $8,000 tax credit for first-time home buyers which was set to expire in November. Construction spending saw its first increase in six months, up .04% in October.
The economics reports did not help the US dollar, which fell 0.6% and pushed commodities higher. Oil prices rose to $78.22 a barrel. Gold continued climbing, reaching $1,196.50 an ounce at closing.
Even with all the good news, the reality is that the economy is still hurting. "We are still in a two steps forward one step back kind of environment," Stoltzfus cautioned, "but it's difficult to argue with a market that has been taking stocks higher."