The risk-takers are back on Wall Street. The question now is how long they’re willing to stay and play.
Stocks rallied broadly on Monday, continuing the surprising October rally and lifting more key indexes to their highest levels since early August.
While the blue-chip Dow Jones industrial average rose 104.83 points, or 0.9%, to 11,913.62 -- the highest close since the index was last above 12,000, on Aug. 1 -- the hot action was in small and mid-size stocks.
The Russell 2,000 small-stock index jumped 23.61 points, or 3.3%, to 736.03. That lifted it out of the trading range where it has been stuck for the last two months, following the plunge of late July and early August on global recession fears.
Investors who have been skeptical about this month’s rebound have been waiting to see whether it would continue to broaden. Demand for smaller stocks indicates that buyers’ appetite for risk-taking is growing. “It says they’ve put aside, for now, worries about recession,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, N.J.
Stocks advanced even though markets still are waiting on a definitive plan from European authorities to contain their government-debt crisis and bolster the continent’s weak banks. An announcement is expected on Wednesday.
In the meantime, bullish investors and traders have been pleasantly surprised in recent weeks by data suggesting that the U.S. economy continues to expand, if moderately. (See here, here and here.)
That also has been the message in most blue-chip companies’ third-quarter earnings reports, said Marc Pado, U.S. market strategist at brokerage Cantor Fitzgerald.
Caterpillar, one of the 30 Dow stocks, wowed investors Monday by reporting third-quarter profit up 44%, beating analysts’ expectations. The stock surged $4.38, or 5%, to $91.77.
The October turnaround in stocks, Pado said, reflects that “the bears woke up and found out that earnings are great. And earnings are what matters.”
In another encouraging economic sign Monday, a report showed that China’s manufacturing sector expanded in October after contracting for three months. That helped light a fire under still-depressed prices of commodities, which China consumes in mass quantities. The ThomsonReuters/Jefferies CRB index of 19 major commodities jumped 2.4% to its highest level since Sept. 21.
On Wall Street, the Dow now is up 11.8% from the market’s low point on Oct. 3. The Russell 2,000 index, which has surged 7% just in the last week, is up 20.8% since Oct. 3.
Of course, given the wild swings of the last two months, many investors remain suspicious of the rally’s staying power. But if the market reacts well to whatever the Europeans announce on Wednesday, that could clear away more doubts.
And as the bulls are quick to remind, hedge funds and other big players know that November and December historically are the stock market’s best two months of the year. If they think prices are going higher they can’t afford to be left behind.
California employers added jobs in September
McDonald's earnings jump; stock hits all-time high
October auto sales expected to stay healthy
-- Tom Petruno
Follow me on Twitter: Twitter.com/tpetruno
Photo: On the New York Stock Exchange floor on Monday. Credit: Richard Drew / Associated Press