U.S. Stocks Climb, Pushing Dow Average to Highest Close of 2009

U.S. stocks gained, sending the Dow Jones Industrial Average above its highest close in a year, after Alcoa Inc. unexpectedly reported a profit and economic data signaled the U.S. recession is ending.
Alcoa jumped 11 percent, the most since June, after the largest U.S. aluminum producer cut jobs and raw-material costs faster than analysts projected. Newmont Mining Corp. and Freeport-McMoRan Copper & Gold Inc. rallied more than 10 percent on record gold prices. Macy’s Inc., the second-biggest department-store chain, soared 10 percent as U.S. retailers said same-store sales rose for the first time in 13 months.
“If we can get the retail numbers to keep going up, then the stock market will go up,” said Jerome Dodson, who oversees $2.5 billion at Parnassus Investments in San Francisco. “By the end of the year, I expect the market to be somewhat higher than we are today.”
The Standard & Poor’s 500 Index climbed 4.5 percent to 1,071.49 for the biggest weekly advance in three months. The Dow average rose 377.27 points, or 4 percent, to 9,864.94. The Nasdaq Composite Index added 4.5 percent to 2,139.28.
Equities advanced as economic data showed first-time jobless claims slid to the lowest level since January and the U.S. service industries grew after 11 months of contraction. The S&P 500, up 58 percent in the past seven months, posted the first five-day rally for a week since November 2006.
Rising P/E’s
The gains have driven the index’s valuation to 20.3 times reported operating income for its companies, the most since 2004. The VIX, as the Chicago Board Options Exchange Volati Index is known, tumbled 19 percent to 23.12 for the steepest weekly decline since November. The index measures the cost of using options as insurance against S&P 500 declines.
The number of Americans filing first-time claims for unemployment benefits slid to 521,000 in the week ended Oct. 3, Labor Department data showed. That was below the median estimate for 540,000 claims from a Bloomberg survey of economists. The Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90 percent of the economy, rose to 50.9, above the line between expansion and contraction.
Alcoa rose to $14.24, the highest price since October. The company reported a profit of 4 cents a share, exceeding the average analysts’ estimate for a 9-cent loss.
Newmont, the largest U.S. gold producer, advanced to $46.50. Freeport-McMoRan, which operates the world’s biggest gold mine, climbed 13 percent to $74.34.
Gold Gain
Gold, which has climbed for seven of the past eight weeks, reached a record $1,062.70 on Oct. 8. Australia’s monetary- policy makers unexpectedly raised borrowing costs this week, triggering a decline in the dollar and a rally in bullion prices.
The Dollar Index, which tracks the currency against the yen, euro, Swiss franc, pound, Swedish krona and Canadian dollar, slid 0.9 percent to 76.35 for the week.
The Federal Reserve will be prepared to tighten monetary policy when the outlook for the economy “has improved sufficiently,” Chairman Ben S. Bernanke said at a Board of Governors conference in Washington on Oct. 8.
“Accommodative policies will likely be warranted for an extended period,” Bernanke said. “At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem.”
Macy’s rose to $19.15. Limited Brands Inc., which owns the Victoria’s Secret stores, soared 13 percent to $18.26.
Same Store
Data from Retail Metrics Inc. showed sales at U.S. chain stores open at least a year climbed 1.1 percent last month as discounts drew shoppers. Seventy percent of retailers reported sales results that exceeded the average of estimates compiled by the Swampscott, Massachusetts-based research firm.
“Even though the market has had a very big move off the bottom, there are still a lot of stocks out there that aren’t fully valued,” said Matthew Kaufler, who helps oversee $2 billion at Federated Clover Investment Advisors in Rochester, New York, in a Bloomberg Television interview.
Johnson & Johnson, Goldman Sachs Group Inc. and Google Inc. are among the 31 companies in the S&P 500 scheduled to release quarterly results next week. The index is projected to post a ninth straight period of declining profits, the longest streak since the Great Depression, before returning to growth in the final three months of the year, analysts’ estimates show.
Retail sales in the U.S. probably fell in September as dealer showrooms emptied out following the expiration of “cash for clunkers,” economists said before a report next week.