Stocks Surge on Positive Jobs Data, Cisco Forecast
A drop in unemployment claims and an upbeat forecast from Cisco Systems Inc. gave investors a jolt of confidence a day before a key government report on jobs.
The Dow Jones industrial average jumped 200 points Thursday to its first close above 10,000 in two weeks, while the Nasdaq composite index led major indexes with a gain of 2.4 percent after Cisco, the maker of computer-networking gear, predicted its revenue would grow.
The Labor Department said the number of newly laid-off workers seeking unemployment benefits fell to 512,000 last week, the lowest level since January and fewer than economists had forecast. Initial claims are considered a gauge of the pace of layoffs.
The report unleashed a wave of optimism about the government’s monthly report on employment Friday, which will shape trading because of the ties between joblessness and consumer spending. Economists say spending must increase for the economy to mount a sustained recovery. Analysts project that the unemployment rate rose to 9.9 percent in October.
The biggest jump in productivity in six years drove hopes that lower costs will boost corporate profits. The report also illustrated, though, that many employers remain reluctant to hire.
The government said the amount of output per hour worked rose 9.5 percent in the July-September quarter.
Meanwhile, retailers posted sales gains for the second straight month in October after watching business slide for more than a year. The retail industry posted a 2.1 percent sales gain for October, according to an International Council of Shopping Centers-Goldman Sachs tally. Investors are looking for any sign that consumers are willing to spend more as the holiday shopping season approaches.
“The news coming in has been for the most part better than expected,” said Mike Boyle, senior vice president and portfolio manager at Advisors Asset Management.
According to preliminary calculations, the Dow rose 203.82, or 2.1 percent, to 10,005.96, its first close above 10,000 since Oct. 22. It was the Dow’s biggest advance since a gain of 257 points on July 15, when computer chip maker Intel Corp. said business was improving.
The broader Standard & Poor’s 500 index rose 20.13, or 1.9 percent, to 1,066.63, while the Nasdaq rose 49.80, or 2.4 percent, to 2,105.32.
The Russell 2000 index of smaller companies rose 18.03, or 3.2 percent, to 581.15.
Five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.3 billion shares compared with 1.4 billion Wednesday.
Bond prices were mixed. The benchmark 10-year Treasury note slipped but its yield remained flat at 3.53 percent from late Wednesday.
Mixed economic data in recent weeks have made it difficult for investors to get a sense of where the economy is headed, leading to choppy trading. The Federal Reserve pointed to hopeful signs about the economy Wednesday but also said it would keep interest rates low for “an extended period” to help stimulate growth.
While the market often jumps at good news, investors can’t shake fears that the economy won’t be able to maintain the 3.5 percent pace of growth seen in the third quarter as government stimulus programs wind down.
Jeff Mortimer, chief investment officer at Charles Schwab Investment Management, predicts the choppiness will last at least through the end of the year.
“This is a transition period in a bull phase,” he said. “Bull markets are front-end loaded and they give almost 50 percent of their return in their first one year of life.”
Cisco pulled tech stocks higher after it said late Wednesday that it expects revenue to grow for the first time in a year for the quarter ending in January. The stock rose 64 cents, or 2.8 percent, to $23.93.
The Labor Department’s monthly employment report is considered by many economists the most important economic reading because a sustained recovery depends on consumer spending.
Quincy Krosby, market strategist for Prudential Financial, said investors will be looking inside the report for the average number of weekly hours worked and demand for temporary workers. That’s because as the economy improves businesses will first ask employees to stay at work longer and bring in more temps before managers gain enough confidence to hire.
In September, the number of weekly hours worked stood at a record low of 33, while the number of temporary workers fell by a modest 2,000 people.
Krosby said improvements in hours worked and the number of temp workers would bolster the idea the job market is healing.
“It will give legitimacy to the notion that the economy is picking up,” she said.
The dollar fell against other major currencies. Gold prices rose.
Light, sweet crude fell 78 cents to settle at $79.62 per barrel on the New York Mercantile Exchange.
Overseas, European shares recovered from early losses to end higher after central banks left interest rates unchanged. The Bank of England said it would pump more money into the economy after news last week that the country remains in recession.
Britain’s FTSE 100 rose 0.4 percent, Germany’s DAX index added 0.7 percent, and France’s CAC-40 gained 1.1 percent. Earlier Thursday, Japan’s Nikkei stock average fell 1.3 percent.
11/5/2009 4:54 PM TIM PARADIS, AP Business Writer NEW YORK