Stocks at '09 highs on signs of recovery
NEW YORK -- The "recovery trade" gained speed Monday on Wall Street, as the stock market rallied to a 2009 high after a batch of reports suggested economies around the globe were on the mend.
Driving stocks sharply higher in the U.S. were better-than-expected readings on personal income, construction spending and manufacturing. That upbeat news followed positive data from China and Europe, which also sparked a rally in foreign stocks.
The takeaway: The recession that began in December 2007 is loosening its grip and the likelihood of a recovery is increasing.
The mere hint of a rebound was enough to propel investors to snap up stocks and shrug off the bankruptcy filing by U.S. auto icon General Motors.
The Standard & Poor's 500 rose 2.6% to 942.87, its best close since Nov. 5. The benchmark index is now up 4.4% in 2009 and up 39.4% since its March 9 bear market low.
Despite repeated comments from skeptics who say the market has run up too far, too fast, stocks continue to plow higher. As a result of the stock market's resiliency, a growing chorus of bulls say this rally has legs and won't crash and burn anytime soon.
"This rally is significant and sustainable," says Neil Hennessy, portfolio manager at Hennessy funds. The stabilization of the banking system, coupled with massive cost-cutting and write-downs by companies in the past six months in response to a sharp drop in demand, is paving the way for a recovery in stock prices and corporate earnings, he argues.
With inventories depleted, companies will soon have to start producing goods again, which will boost hiring and confidence enough to spur fresh spending and a rebound in corporate profits, Hennessy says.
Skeptics such as Vahan Janjigian, editor of Forbes Growth Investor newsletter, however, argue that it's difficult to trust such a massive rally that has been based on the "fact that things in the economy are getting worse at a slower rate."
Another bullish sign: For the first time in 18 months, the S&P 500 closed above the trend line based on its average price the past 200 days. That is an "important directional barometer" and suggests the trend is up, says Jack Ablin at Harris Private Bank.
