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Dow climbs 203 points to highest close in more than a year

Stocks continue rally after G-20 finance ministers and central bankers reassure investors that they will continue working to prop up world economies and keep interest rates low.

November 10, 2009|Tom Petruno and Jerry Hirsch

For Wall Street's bulls, bigger is now a better idea.

Shares of the largest, best-known U.S. companies are spearheading the market's latest advance -- a switch from the first seven months of the rally, when small-company stocks mostly led the charge.

Stocks rallied around the world Monday and the dollar tumbled after finance ministers and central bankers in the Group of 20 said they would continue working to prop up world economies and keep interest rates low.

The Dow Jones industrial average climbed 203.52 points, or 2%, to 10,226.94, its highest level in 13 months.

By contrast, though most broader market indexes also advanced Monday -- some more than the Dow did -- they remained below their 2009 highs set last month. The Russell 2,000 small-stock index, for example, on Monday gained 11.96 points, or 2.1%, to 592.31. That left it 5% below its one-year closing high of 623.94 reached Oct. 14.

Some investors may just be figuring that, if they're going to get aboard the bull market at this point, it's safer to stick with the most familiar and most liquid issues.

American Express, Caterpillar and United Technologies were among the Dow's 30 stocks reaching their highest levels in at least a year.

When the market surge began in early March, buyers did what they usually do at major turning points, which is to favor the most beaten-down stocks, betting that they'll snap back the fastest. And as usual in bear markets, small-company stocks had suffered much greater losses than blue chips from September 2008 to March.

The snap-back bet on small stocks worked beautifully: The Russell 2,000 soared 76% from March 9 to Sept. 30, far exceeding the 48% gain in the Dow.

But since Sept. 30 the Dow has pulled ahead, climbing 5.3% while the Russell has lost 2%.

Sam Stovall, chief investment strategist at Standard & Poor's in New York, says it's typical for big-name stocks to take the lead in the second year of bull markets. Given the magnitude of the market's gains since March, some investors may already be moving out of smaller issues and into blue chips, he said.

The mega-companies' stocks have three other things working in their favor. One is the continuing slide in the dollar, which can be a boon to U.S. exporters by making their products cheaper for foreign buyers.

An index of the dollar's value against six major currencies sank 1% on Monday, touching a 15-month low in intraday trading, as the G-20's promise of continued stimulus encouraged investors to move out of "safe haven" holdings in the U.S. in favor of riskier assets in other countries.

The second reason big-company stocks have been outperforming smaller ones: Given nagging doubts about the U.S. economy's growth prospects, many investors are looking to multinational firms for their overseas growth potential. McDonald's shares rose 1.5% on Monday to their highest level since January after the company said same-store sales were up 3.3% in October from a year earlier -- with all of that improvement coming from foreign stores.

Third, investors who are jumping into stocks now may want to be sure they also can jump out quickly, should some out-of-the-blue bolt of bad news trigger a serious plunge. That's an argument for owning the most liquid, easy-to-sell shares, and those are the names in the Dow.

On Monday, however, the vast majority of stocks shared in the rally. Advancing issues outnumbered declining ones by 5 to 1 on the New York Stock Exchange.

The broad Standard & Poor's 500 index rose 23.78 points, or 2.2%, to 1,093.08. The Nasdaq composite index gained 41.62 points, or 2%, to 2,154.06.

"There is a realization that the economic environment is modestly improving. A lot of the fear that was in place earlier this year has started to subside," said John Buckingham, chief investment officer at Al Frank Asset Management in Laguna Beach.

"There is still a tremendous amount of money sitting on the sidelines," he said. "Imagine what will happen once we start to have some real interest from investors."

Monday marked six straight up days for the S&P 500.

"More than anything, it is the continuation of good data -- better-than-expected economic reports," said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.

Commodity prices rallied Monday, pushing up raw-material stocks, on the weakening dollar as well as increasing optimism about the economy.

Oil futures climbed $2 to $79.43 a barrel, while gold futures rose $5.70 to $1,100.80 an ounce. Shares of gold giant Newmont Mining climbed 3% to a 12-month high. Freeport McMoRan Copper & Gold added 4.6%.

Overseas, key stock indexes rose 2.4% in Germany, 2.1% in France, 1.8% in Britain and 0.2% in Japan.


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