- The Washington Times - Thursday, October 9, 2003

Major stock indexes, buoyed by declining unemployment and booming sales at the nation’s department stores, yesterday climbed to their highest levels of the year, marking the first anniversary of a new bull market.

The stock market’s advance, especially since investors shook off worries about the Iraq war in March, reflects growing evidence that the economic recovery is moving into a higher gear and producing marked improvements in corporate earnings and sales.

Wall Street analysts say the year-long bull run has at least interrupted — and may possibly have ended — the longest bear market in modern times.

A bull market is defined as a sustained advance of 20 percent or more in the major stock indexes. Since touching a five-year low on Oct. 9 of last year, the Dow Jones Industrial Average has risen by 33 percent. The blue-chip Standard & Poor’s 500 index has gained 34 percent since touching a six-year low, while the technology-driven Nasdaq Composite Index has soared by 72 percent.

Yesterday, the Dow and Nasdaq indexes rose to their highest levels of 2003 on brightening news about the economy and earnings. The Dow, which is nearing a retest of the 10,000 level, jumped as much as 136 points before paring its gains to end up 49 points at 9,680. The Nasdaq added as much as 40 points or 2 percent before retreating to an 18-point gain at 1,912.

The rise in stocks this year reflects “justifiable optimism about the future of the economy,” said Federal Reserve Governor Ben Bernanke in a speech yesterday. The market this summer has concluded the economy is on a “significant growth path” that will prompt companies to start consistently hiring workers again within the next six months, he said.

News from the Labor Department and major retailers yesterday bolstered the impression that the economy is growing at a rapid rate that will soon produce job growth.

Retailers from Wal-Mart to the Gap reported the biggest monthly increase in sales since March 2002, a gain of 5.9 percent during September, according to Michael Niemira, economist with the Bank of Tokyo-Mitsubishi Ltd. The bank had been expecting an increase of only 3.5 percent in sales at the 77 chain stores it tracks.

“Broad-based improvement is now at hand,” after years of sporadic sales, said Mr. Niemira. “Clearly, the consumer is on the comeback. … This is an affirmation that this will be a much better holiday season, perhaps the best since 1999.”

Meanwhile, the Labor Department reported that new claims for unemployment benefits dropped from 405,000 to 382,000 last week, the lowest level since February. That stoked hopes that declining joblessness will bolster confidence and incomes, and enable consumers to continue the spending spree they started this summer.

Consumer and tech stocks led yesterday’s advance, boosted by the boom in retail sales and a report from the popular Web site Yahoo that profits more than doubled in the third quarter on higher advertising sales.

Shares of Yahoo jumped 12 percent, while EBay, the Web auction site, surged to a record high of $61.15, surpassing levels reached at the height of the Internet stock bubble in March 2000.

Wal-Mart rose 65 cents to $59.17, while shares of Federated Department Stores, the owner of Macy’s and Bloomingdale’s, added $1.32 to $45.72, and Sears stock rose $1.15 to $49.88.

Bearish gurus on Wall Street argue that the stock rally has gone too far, citing the fragility of the recovery, high stock valuations, excessive bullishness, and the lofty levels of technology stocks such as EBay, which led the market through the 1990s boom and into the bust in 2000.

But bullish analysts say stocks still have room to grow. A spate of other upbeat economic news yesterday added weight to their arguments. A survey of corporate chief executives by the Conference Board recorded a surge in confidence to an 11-year high, reflecting the belief in executive suites that the economic recovery is gathering speed.

Also, a measure of manufacturing activity published by the Manufacturers Alliance yesterday showed the best conditions in that battered sector in six years. And the National Automobile Dealers Association raised its forecast of domestic car sales this year by 1.8 percent to 16.6 million, citing the improving economy.

“I am siding with the bulls,” said Edward Yardeni, chief investment strategist with Prudential Securities. “The bear market of the past three years followed a very narrowly led bull market dominated by technology stocks whose valuation multiples soared too close to the sun. The latest bull market has been driven by a widespread recovery in earnings in many sectors and industries.”

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