A late-afternoon rally sent stocks soaring Monday, lifting the Dow Jones industrial average to its highest level in 31 months, as investor sentiment was boosted by some encouraging comments from U.S. Federal Reserve Chairman Alan Greenspan.
Speaking at an economic conference in London, Greenspan said he is confident that jobs lost during the recent recession could be replaced. He also warned U.S. policy-makers against putting up protectionist trade barriers, saying it could be bad for the global economy.
“I think Mr. Greenspan has given us some hope,” said Peter Cardillo, president and chief strategist of Global Partner Securities Inc. “He’s confident there will be creation of new jobs and that was what the market wanted to hear.”
The Dow industrials rallied 134.22 points, or 1.3 percent, to close at 10,702.51, after a weekly loss of 0.3 percent that ended eight weeks of advances. It was the index’s highest finish since June 21, 2001, when it closed at 10,715.43.
The Dow is now slightly more than 1,000 points away from its all-time high close of 11,722.98, reached on Jan. 14, 2000.
The market's broader gauges also rallied Monday.
Negative for much of the day, the Nasdaq composite index closed up 29.96 points, or 1.4 percent, at 2,153.83, after last week’s 0.8 percent decline ended a six-week winning streak. The Nasdaq last closed higher on June 29, 2001, when it finished at 2,160.54.
The Standard & Poor’s 500 index closed Monday up 13.82 points, or 1.2 percent, at 1,155.37, following a weekly rise of 0.1 percent — its ninth consecutive week of advances. It was the S&P 500’s highest close since March 19, 2002, when it finished at 1,170.29.
About one-third of companies in the Standard & Poor’s 500 have reported results so far, and earnings are up about 27 percent overall — better than the expected 21 percent increase. That combined with upbeat economic news bodes well for the economy, but some analysts are starting to worry that the market is overbought, and may be headed for a pause.
Although technology and small-cap stocks continue to keep pace, there seems to be a fundamental shift toward higher quality companies, said Joseph Keating, chief investment officer at AmSouth Asset Management.
“Our impression is that the Dow will do a little bit better in 2004 than some of the other indexes,” Keating said. “The valuations are looking better, and we think people are really going to come around to appreciate that dividends are tax-advantaged. That’s something that got lost in the shuffle last year.”
Greenspan’s comments, which did not address the outlook for the U.S. economy, came a day before the Fed starts a two-day meeting to consider when to raise interest rates. Low inflation and slow jobs growth make it unlikely rates will rise anytime soon, economists say.
Separately Monday, the National Association of Realtors reported that sales of previously owned homes reached a new record high last year, largely fueled by attractive mortgage rages.
On the Dow, Merck & Co., closed up $1.42 at $47.20 after the financial journal Barron’s noted that it trades at a lower price-to-earnings multiple than its rivals and offers a bigger dividend yield than many.
Dow component Hewlett Packard Co. rose 82 cents to close at $26.12 after rival printer maker Lexmark International Inc. beat expectations with a rise in quarterly profits on strong sales. Lexmark gained $5.66 to close at $84.50.
Aventis SA gained $2.10 to close at $75.10 after the French drug maker called on shareholders to reject a hostile takeover bid by smaller rival Sanofi-Synthelabo. The merger would have created the biggest drug company in the European market. Sanofi-Synthelabo, the maker of anti-stroke drug Plavix and the sleeping pill Ambien, closed down $2.71 at $34.30.
Drugmaker Schering-Plough Corp. closed up 33 cents at $17.85 after its earnings missed estimates, largely due to a decline in sales and a large restructuring charge. The maker of Clarinex allergy medicine reported a loss for the year — a first since the company was formed by a 1970 merger.
Advancing issues outnumbered decliners about 5 to 4 on the New York Stock Exchange. Volume was moderate, with 1.44 billion shares traded, compared with 1.55 billion shares Friday. The Russell 2000 index, which tracks smaller company stocks, rose 5.36 points, or 0.9 percent, to 601.50.
Overseas, Japan’s Nikkei average finished Monday 2.8 percent higher. In Europe, France’s CAC-40 lost 0.5 percent, Britain’s FTSE 100 slipped 0.3 percent and Germany’s DAX fell 0.6 percent.