Stocks jump as better jobs data, upbeat forecast from Cisco boost hopes for economic rebound

By Tim Paradis, AP
Thursday, November 5, 2009

Stocks surge on jobs data, Cisco forecast

NEW YORK — A bright forecast from Cisco Systems and upbeat economic news sent stocks soaring Thursday and propelled the Dow Jones industrials back above 10,000. The rally, coming a day before the government’s October employment report, showed that investors are regaining their optimism about an economic recovery.

The Dow bolted up 203 points, or 2 percent, while the Nasdaq composite index, led by Cisco’s outlook, rose nearly 2.5 percent. The market’s move continued a streak of volatility that began last month, but this latest surge was powered not by a single event, but by a wave of good news:

— Cisco Systems Inc. boosted hopes for the technology industry after the largest maker of computer-networking gear forecast revenue growth for the first time in a year. The forecasts of CEO John Chambers carry big weight on Wall Street and his announcement that the company would begin hiring workers injected a jittery market with confidence.

— The government 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.

— Worker productivity jumped by the most in six years, rising 9.5 percent in the July-September quarter. The government figures drove hopes that lower costs would boost corporate profits. The report also illustrated, though, that many employers remain reluctant to hire.

— Retailers had higher sales for the second straight month in October after more than a year of sliding. 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 reports gave investors a shot of optimism about the government’s monthly report on employment Friday, which will steer trading because of the ties between joblessness and consumer spending. Analysts say spending must increase for the economy to have a sustained recovery. Economists project that the unemployment rate rose to 9.9 percent in October.

“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.

The Dow rose 203.82, or 2.1 percent, to 10,005.96, its first close above 10,000 since Oct. 22, and 86 points below its high of the year. It was the sixth time in 2009 that all 30 stocks in the index rose and it was the 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, its fourth straight gain.

The Nasdaq rose 49.80, or 2.4 percent, to 2,105.32, its biggest gain since a 2.5 percent spike on July 23.

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 consolidated volume came to 4.9 billion shares compared with 5.6 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.

Uneven economic news in recent weeks has 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’s prediction late Wednesday that it expects revenue to grow for the quarter ending in January renewed optimism about tech companies, which have been leaders in the market’s eight-month run. Cisco rose 64 cents, or 2.8 percent, to $23.93.

That enthusiasm could crumble if the jobs report, due Friday at 8:30 a.m. EST, falls short.

Quincy Krosby, market strategist for Prudential Financial, said investors will be looking at 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 will 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 these areas 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 was essentially flat against other major currencies. Gold prices rose.

Crude oil 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. Japan’s Nikkei stock average fell 1.3 percent.

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