Stocks sharply higher as investors cheer Obama spending plan, await Detroit bailout
NEW YORK (AP) — Wall Street extended its rally into a second session Monday as investors grew optimistic that President-elect Barack Obama’s plan for a huge infrastructure spending package will help boost the crippled economy. The Dow Jones industrial average rose more than 300 points.
Obama announced over the weekend plans for the largest U.S. public works spending program since the creation of the interstate highway system a half-century ago. That could bolster the economy by putting thousands of people to work building schools and other construction projects.
Investors also appeared more comfortable that the government is closer to legislation that would dole out billions to America’s three biggest automakers within a week. Congress is expected to pass a $15 billion bailout for Ford Motor Co., General Motors Corp., and Chrysler as soon as Tuesday.
Obtaining the aid might come in exchange for the jobs of the companies’ top executives. Sen. Chris Dodd, D-Conn., who chairs the Senate Banking Committee, said Sunday that Rick Wagoner, GM’s chief executive, “has to move on.”
Major U.S. stock indexes fell last week after a number of negative reports seemed to indicate the recession is showing no signs of weakening. However, as the week progressed, the market appeared to be taking the bad news in stride — even Friday’s Labor Department report that showed the nation lost more than a half a million jobs last month. The report raised hopes that the government would take more steps to stimulate the economy.
Scott Fullman, director of derivative investment strategies with WJB Capital, warned that the move higher for U.S. markets should be treated cautiously. He said credit still remains tight around the world, and that there are still a number of other worries hanging over the market.
“There’s a chance we could be higher for the day, but I’d be very cautious about jumping in with both feet and expecting what could be a Santa Claus rally going into the New Year,” he said. “The fact is, we’re not seeing the credit markets opening up, we’re not seeing buying of the distressed debt, and that leads to additional worries for stocks.”
In midmorning trading, the Dow rose 301.23, or 3.49 percent, to 8,936.65 after rising 259 points on Friday.
Broader indexes were also higher. The Standard & Poor’s 500 index added 31.35, or 3.58 percent, to 907.42; and the Nasdaq composite index jumped 51.38, or 3.40 percent, to 1,560.69.
There were only 381 stocks that declined on the New York Stock Exchange, with 2,261 rising. Volume on the NYSE came to 207 million. Meanwhile, the Russell 2000 index of smaller stocks rose 8.85, or 1.92 percent, to 469.94.
The move higher follows a global rally as investors took heart from signs the world’s largest economies are redoubling efforts to revive growth. In China, government officials this week are meeting to discuss possible new steps to expand the $586 billion stimulus that is already in place.
Hong Kong’s Hang Seng index vaulted 8.7 percent to its highest close in seven weeks, while Japan’s Nikkei 225 average 5.2 percent. Major European bourses also surged, with Britain’s FTSE-100 climbing 4.8 percent, Germany’s DAX up 6.8 percent, and France’s CAC-40 adding 6.9 percent.
Bond prices were little changed despite the rally in stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.69 percent from 2.70 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, was unchanged at 0.01 percent.
The dollar was mixed against other major currencies, while gold prices rose.
With little in the way of economic data to trade on, investors closely monitored corporate news for direction.
Consumers hungry for a deal boosted worldwide sales at McDonald’s Corp.’s established locations by 7.7 percent in November. The company said that U.S. same-store sales — or sales at locations open at least a year — rose 4.5 percent. Shares of the company rose 14 cents to $62.86.
Dow Chemical Co. rose $1.51, or 8.1 percent, to $20.53 after the company announced it will slash 5,000 jobs and shutter 20 plants to rein in costs. It expects to save about $700 million per year by 2010.
Merrill Lynch & Co. Chief Executive John Thain has suggested to directors that he receive a 2008 bonus of as much as $10 million, The Wall Street Journal reported, citing people familiar with the situation. However, the company’s compensation committee is said to be resisting the request. On Friday shareholders of Merrill and Bank of America Corp. approved the combination of the companies.
Shares of the brokerage rose $1.12, or 8.9 percent, to $14.16.
3M Co. is cutting 1,800 jobs in the fourth quarter and ordering some workers to take vacation or unpaid time off for the last two weeks of the year. The Maplewood, Minn.-based manufacturer had earlier announced 1,000 job cuts in the third quarter. The 1,800 new layoffs will come from the U.S., Western Europe and other developed nations. The company also lowered its 2008 earnings outlook and forecast 2009 profit below Wall Street expectations, citing slowing revenue. Shares fell $1.44, or 2.4 percent, to $58.41.
Tribune Co. might be heading toward bankruptcy. The owner of the Los Angeles Times and Chicago Tribune, other newspapers and the Chicago Cubs and Wrigley Field, has hired financial advisers ahead of a possible filing for bankruptcy court protection, according to reports on Sunday. The Chicago Tribune reported that its parent hired investment bank Lazard Ltd. and law firm Sidley Austin as it considers its financial options.
Oil prices bounced off four-year lows after OPEC’s president suggested the group could surprise investors with a large production cut later this month. Light, sweet crude rose $2.91 to $43.71 a barrel on the New York Mercantile Exchange.
