Stocks rise on falling oil prices
Investors cheered by falling oil prices and an improving job picture sent stocks higher Tuesday, hoping the news signals a renewal of economic strength and a fall rally in stocks.
Oil prices dropped below the $43 per barrel mark before rising slightly to end the session, giving credence to investors’ belief that the summer’s run on oil prices was at an end. A barrel of light crude settled at $43.31, down 68 cents, on the New York Mercantile Exchange.
Wall Street also moved higher on Friday’s jobs report, which was overlooked in last week’s very light trading and overshadowed by Intel Corp.’s disappointing mid-quarter report. The Labor Department reported a 0.1 percentage point drop in the unemployment rate and the creation of 144,000 new jobs.
“The market is rallying on the jobs report and the fact that the price of oil is heading lower,” said Peter Cardillo, chief strategist and senior vice president at S.W. Bach & Co. “If we break $40 a barrel on oil and keep the jobs coming, we could see a substantial rally in stock prices this month.”
The Dow Jones industrial average rose 82.59, or 0.8 percent, to 10,342.79, its highest close since June 30.
Broader stock indicators rose moderately. The Standard & Poor’s 500 index was up 7.67, or 0.7 percent, at 1,121.30, and the Nasdaq composite index gained 14.08, or 0.8 percent, to 1,858.56.
While volume on the major markets rose substantially after last week’s record lows, many investors remained on the sidelines, awaiting Federal Reserve chairman Alan Greenspan’s testimony before Congress on Wednesday, where he was expected to give his view on the strength of the economic recovery.
“I think Greenspan will stick to his mantra of a measured pace of interest rate hikes,” said analyst John Lynch. “We’re transitioning from the spectacular growth of the past year to more boring, but still important, growth, and the interest rate policy has to reflect that.”
Investors seemed to discount the impact that the summer’s skyrocketing oil prices would have on third-quarter earnings, even as the usual round of warnings and preannouncements begin in earnest this week. Analysts said that while oil would be a factor, along with more difficult year-over-year comparisons, earnings overall should remain positive, with double-digit earnings growth expected.
A serious rally, however, may be postponed until after the presidential elections, or at least until a clear front-runner is established, Lynch said. “As we all know, the market hates uncertainty, and the election situation is still too uncertain for anybody to make a bet right now,” he added.
Most industry sectors enjoyed gains Tuesday, with mining and construction stocks leading the market. Shares of oil producers and oil equipment makers fell as crude oil futures dropped, while semiconductors suffered more losses in the wake of Intel’s mid-quarter announcement.
Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where preliminary consolidated volume came to 1.48 billion shares, compared to 1.14 billion on Friday.
The Russell 2000 index of smaller companies was up 6.69, or 1.2 percent, at 562.93.
Overseas, Japan’s Nikkei stock average rose 0.5 percent. In Europe, Britain’s FTSE 100 was flat for the session, France’s CAC-40 closed up 0.3 percent and Germany’s DAX index also finished flat.