-- The stock market had its best day in 2½ years Wednesday as bold steps to deal with Europe's financial mess shifted focus to signs of renewed life in the U.S. economy.
A coordinated effort by the world's central banks to stem the European debt crisis provided the spark for a powerful rally that lifted the Dow Jones industrial average 490 points, or 4.2%, to 12,046 — its best showing since March 2009 and seventh-biggest point gain ever. News on the U.S. economy gave investors even more reason for optimism:
•The most dramatic development came on the jobs front. Private employers added 206,000 jobs in November, more than expected and the largest gain since December 2010, according to a widely watched report by a payroll processing firm.
•A separate report showed that business activity in the Midwest expanded faster than expected in November.
•While the real estate market is still under pressure, the number of U.S. home buyers to sign contracts for homes jumped 10.4% in October.
•The Federal Reserve reported growth in 11 of its 12 bank regions.
The stock market has strong momentum headed into December, the top month for stocks since World War II, S&P Capital IQ says.
U.S. companies are already in good shape, even as economic conditions improve. "The fundamentals of U.S. corporations are very strong,"says Michael Farr of Farr Miller & Washington.
Despite hand-wringing over how Europe's fate could hurt the global economy, analysts say there are reasons to be bullish. Companies are sitting on a record pile of cash, nearly $1 trillion as of the third quarter, says S&P Capital IQ's Howard Silverblatt. And thanks to years of cost-cutting, corporate profits are expected to grow 10.6% in the fourth quarter, making it the third-best quarter ever.
Meanwhile, dividends are up 16.5% this year from last year and by the second quarter of next year are expected to meet or exceed the record set in June 2008, Silverblatt says.
Robert Maltbie of Singular Research says investors have been missing an opportunity. "There's a big disconnect in the market," he says, because investors are allowing Europe's largely unrelated problems to chase them out of stocks.
Still, Jack Ablin of Harris Private Bank says that while recent developments might encourage investors, problems won't disappear overnight.