- The Washington Times - Saturday, August 1, 2009

NEW YORK | New hope for the economy just gave the stock market its best July in 20 years.

Investors placed big bets over the past month that the profit machine at U.S. companies will continue to rev higher and that the longest recession since World War II is finally easing its grip. If that turns out to be wrong, the huge gains of July mean there will be an even bigger price to pay if companies don’t deliver.

The Dow surged 725 points, or 8.6 percent, for the month, with most of the gains arriving in bursts in the final 15 days. The extraordinary run shaped July into the best month for the blue chips since October 2002 and the best July since 1989. The Dow has risen four of the past five months.

The broader Standard & Poor’s 500 index, a benchmark for many mutual funds, also ran at a strong pace, and July was its best performance since 1997. Even with the gains, the S&P; is still down 37 percent from its peak in October 2007.

The companies that fared best in July were those that signaled they were patching up their businesses after a terrible winter and fall. Caterpillar Inc.’s earnings for the April-June quarter fell, but the company raised its profit forecast for the year. Its stock surged 33.4 percent for the month.

Major stock indexes surged off 12-year lows in early March to rally almost 40 percent by mid-June before stumbling until July’s earnings reports restored hopes for a rebound in the economy.

On Friday, the Dow rose a modest 17.15, or 0.2 percent, to 9,171.61. The S&P; 500 index rose 0.73, or 0.1 percent, to 987.48, while the Nasdaq composite slipped 5.80, or 0.3 percent, to 1,978.50.

“We’re on the edge between recovery and speculation,” said Rick Lake, portfolio manager of Aston/Lake Partners LASSO Alternatives Fund in Greenwich, Conn.

Mr. Lake said the market’s ability to bounce higher in July, even after getting bad news, signals that many investors are looking to jump on the rally.

Investors have been putting money into areas that are expected to do well in a recovery. Materials companies in the S&P; 500 index rose an average of 12 percent for the month. Aluminum maker Alcoa Inc. jumped 13.8 percent.

In other trading Friday, bond prices rose. The yield on the benchmark 10-year Treasury note fell to 3.48 percent from 3.61 percent late Thursday.

Crude rose $2.51 to settle at $69.45 a barrel.

Three stocks rose for every two that fell on the New York Stock Exchange, where consolidated volume came to 5.5 billion shares compared with 6.1 billion Thursday.

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