Dow and Nasdaq positive for 2011 as stocks rally again

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Major U.S. stock indexes on Friday broke out of the trading range where they’ve been stuck for two months, as a surprisingly strong retail sales report and gangbuster earnings from Google Inc. helped fuel a broad rally.

The Dow Jones industrial average and the Nasdaq composite index turned positive for 2011, with both indexes now up 0.6% year to date.

The Dow gained 166.36 points, or 1.4%, to 11,644.49, its highest closing level since Aug. 3 -- when the market was in the midst of a terrifying plunge driven by Europe’s deepening debt crisis and fear of another global recession.

The market’s latest rally has been underpinned by hopes that both of those worries are receding. European stocks have risen for three straight weeks as the continent’s leaders have taken new steps to buttress their financial system. This week, Slovakia became the final country to approve expansion of the Eurozone rescue fund for struggling member countries.

Meanwhile, U.S. economic data have mostly pointed to slow growth, but not a new recession. On Friday, the government said retail sales rose 1.1% in September, a much better gain than economists had expected.

“You have people saying, ‘It’s not a double dip,’ ” said Phil Roth, veteran technical market analyst at Miller Tabak & Co. in New York.

Internet search giant Google’s earnings report late Thursday also stoked optimism. The company said net profit jumped 26% in the third quarter on a 33% surge in revenue. Google shares zoomed $32.69, or 5.8%, to $591.68, the highest since Aug. 3. Lifted by Google and by a new high in Apple Inc. stock, the tech-dominated Nasdaq index added 1.8% to 2,667.85.

For market chart-watchers, the rally was significant because the Dow, the Nasdaq and the Standard & Poor’s 500 all pushed through the tops of their recent trading ranges.

Since the dive in early August, the market has mostly been trading in a fairly narrow channel. The S&P, for example, has mostly bounced between 1,100 and 1,220, a range of 11%, since Aug. 8.

On Friday the S&P rose 20.92 points, or 1.7%, to 1,224.58, above the previous trading-range closing high of 1,218 on Aug. 31.

Bulls have been hoping to see major indexes top their recent highs, which could convince more investors and traders that the market was in a sustainable rebound from the summer plunge.

Many pros believe much of the action in the market since early-August has been little more than short-term players trading back and forth with each other.

But some investors with a longer time horizon say stocks became too attractive to ignore when the Dow slid to a new 52-week low of 10,655 on Oct. 3. It’s up 9.3% since then.

“The market was cheap, and incredibly oversold,” said Chris Konstantinos, director of risk strategy at Riverfront Investment Group, which manages $3 billion in Richmond, Va.

“We see a lot of long-term value in the market,” he said. That’s particularly true in Europe, where stocks fell much harder than U.S. shares, he said. The firm shifted more money into European shares in recent weeks, Konstantinos said.

Continued cash outflows from U.S. stock mutual funds, however, suggest that more individual investors are simply giving up on equities, discouraged by the harrowing summer sell-off and by the jarring volatility since then.

But analysts note that small investors were mostly exiting the market in 2009 and 2010 -- yet stocks continued to move higher for most of that period.

For better or worse, it’s the big-money players that set the trends.

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-- Tom Petruno

Follow me on Twitter: Twitter.com/tpetruno