The Dow Jones Industrial Average yesterday broke through the 10,000 barrier for the first time in a year and a half as Wall Street celebrated evidence that consumer and business spending is sustaining the economic recovery.
After weeks of flirting with the mark, reports of a 0.9 percent jump in sales at the nation’s stores, stabilizing unemployment claims and a second monthly rise of 0.4 percent in business inventory spending helped push the Dow up 86 points to 10,008. The Nasdaq Composite Index surged 38 points to 1,942.
“Everest was conquered,” said Larry Wachtel, commentator at Prudential Securities, adding that after a few failed attempts, traders were “grimly hanging tough” until the closing bell rang.
In a sign that yesterday’s foray over 10,000 may stick this time, he said the market waited for solid reasons to cross over; “bulls are not running rampant” like they were in 1999, the first time the milestone was reached.
The gains at retailers reported by the Commerce Department were broad and better than economists expected, and were accompanied by news from the Labor Department that claims for unemployment benefits are stabilizing at levels associated with modest job growth. Various surveys of employers also are showing the likelihood of a pick-up in hiring next year.
News from the Federal Reserve also lifted the market late in the day after gains from the morning’s economic reports left the Dow just short of 10,000. Minutes from an Oct. 28 meeting of the Fed’s rate-setting committee indicated that the central bank may wait until the end of 2005 or later to raise interest rates now that the economy is recovering — far longer than most Fed-watchers predicted.
“That’s a lifetime from now for the financial markets,” said Douglas Porter, an economist at BMO Nesbitt Burns Inc., noting that the Fed minutes indicated that the central bank would like to see a much stronger job market before it moves up rates.
“The Fed can be patient,” he said. “They don’t see the slack in the labor market being eliminated until late 2005.” The Fed report provoked an immediate drop in the yield on Treasury’s bellwether 10-year bond from 4.35 percent to 4.23 percent.
While low interest rates and growth in consumer spending are critical to sustain the recovery, John Silvia, chief economist at Wachovia Securities, said the rise in inventories reported by the Commerce Department is also important for the recovery.
“Rising inventories reinforce the growth story by adding to the gross domestic product as well as to industrial production,” he said. With the growth in inventories likely to continue as stocks have fallen to record lows with respect to sales, “the period of inventory retrenchment is over,” he said.
More upbeat market forecasts from Wall Street gurus also boosted stocks yesterday. Abby Joseph Cohen, who is Goldman, Sachs & Co.’s chief investment strategist, raised her earnings estimates for companies in the Standard & Poor’s 500 Index and said the benchmark may rise 18 percent in the next year to 1,250.
“The next phase of the equity bull market will be less intense than the past few months,” Ms. Cohen told clients, but profits will continue to be fed by global economic expansion, rising productivity and a falling dollar. “Although total returns are expected to be moderate, they still are likely to exceed the historical trend.”
Ms. Cohen and most other analysts expect U.S. economic growth to cool from the steamy 8.2 percent pace set in the summer quarter. But thanks to that spurt of growth, stoked by tax cuts and extraordinarily low interest rates, earnings for the S&P; 500 companies last quarter climbed 21.3 percent. That was the biggest increase in more than three years, according to Thomson Financial.
“Investors should focus on the expected durability of profit growth, rather than the unsurprising deceleration in 2004,” she said. Ms. Cohen advises investors to keep three-quarters of their assets in stocks.