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[flamboyant]

Dow passes 11,900 to record close on enthusiasm about earnings

Posted 10/12/2006 11:59 PM ET

NEW YORK (AP) — The Dow Jones industrial average broke through 11,900 to close at a record high Thursday, boosted by optimism over the health of corporate earnings.

The index's gain marked its fifth record close in two weeks; the Dow also set a record intraday high.

The markets were upbeat Thursday, with investors focusing on positive news from well-known consumer brands such as McDonald's and on economic data that indicated the economy was holding up even as it slowed. Oil prices, which remain near lows for the year, also boosted the mood on Wall Street.

"In general, we're getting friendly reports between oil inventories being up higher than expected and then some bellwether companies that are exceeding estimates," said John C. Forelli, portfolio manager for Independence Investment LLC in Boston. "It's kind of a return to the Goldilocks economy."

The Dow Jones industrial average rose 95.57, or 0.81%, to 11,947.70. The advance put the 12,000 threshold within investors' sights. The previous record close, from Tuesday, was 11,867.17. The intraday high set Thursday was 11,959.63, eclipsing an earlier record of 11,872.94 reached Monday.

Broader stock indicators also moved higher. The Standard & Poor's 500 index was up 12.88, or 0.95%, at 1,362.83, and the Nasdaq composite index showed the day's biggest gain, advancing 37.91, or 1.64%, to 2,346.18.

Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.77% from 4.78% late Wednesday. The dollar was mixed against other major currencies, while gold prices rose.

Oil prices hovered near year lows following an Energy Department report that inventories were higher last week and amid doubts about whether OPEC's members will be able to agree on an immediate production cut. The price of a barrel of light, sweet crude, which settled at a low for the year on Wednesday, rose 27 cents to $57.86 on the New York Mercantile Exchange.

Investors got a look at the state of the economy with the release of the Federal Reserve's beige book, which summarizes regional economic activity. The report found that economic growth appeared to be moderate or mixed — findings that seemed to reassure investors looking for the economy to slow at a reasonable pace.

Kevin Logan, chief U.S. economist at Dresdner Kleinwort, said the beige book's tone was more optimistic than the one issued in August.

"They didn't say there was much of an inflation problem. Investors saw this as confirmation that the Fed is on hold," he said.

Investors have been keeping close tabs on the Fed as they try to gauge how quickly the economy is slowing. The central bank left short-term interest rates unchanged at its last two meetings following a two-year string of 17 straight increases aimed at curbing inflation. The Fed has said it remains concerned about inflation, but the slowing economy has prompted some hopes, however slim, that a rate cut could be in the offing.

Investors paid less attention to a Commerce Department report that showed the country's trade deficit rose to a record $69.9 billion in August, a 2.7% increase from July. Increased oil imports outpaced a record level of goods and services exports.

Logan said the markets tend to show little reaction to the trade data because, in terms of capital flows, foreign investors still prefer to hold dollars, which keeps the dollar stable.

"Without a depreciation of the dollar that forces up interest rates and inflation, then the equity market is not sensitive to changes in the monthly trade balances," he said.

Some positive corporate news proved reassuring for some investors.

McDonald's rose 98 cents, or 2.38%, to $42.23 after saying systemwide same-store sales, or sales at stores open at least a year, rose 9.8% in September. The world's largest fast-food chain, and one of the 30 stocks that comprise the Dow, said its third-quarter profit would top Wall Street's expectation.

Warehouse chain Costco Wholesale, advanced $3.83, or 7.65%, to $53.90 after reporting its fiscal fourth-quarter profit rose 1%.

Yum Brands, parent of the Taco Bell, Pizza Hut and KFC fast-food chains, rose $4.51, or 8.26%, to $59.08 after reporting that its third-quarter profit increased 12%, aided by growth in China. The company raised its full-year profit forecast above Wall Street's expectation.

PepsiCo fell $1.01 to $62.85 despite posting a 71% increase in its third-quarter profit. The snack food and soft drink maker said sales rose 9% from the year-ago period, which was hurt by a tax charge. The company's forecast, however, was short of Wall Street's expectation.

Deluxe, which makes products like checks and business cards, jumped $3.08, or 16.9%, to $21.29 after raising its third-quarter and full-year profit forecasts as manufacturing and other costs fell.

Advancing issues outnumbered decliners roughly 4 to 1 on the New York Stock Exchange, where consolidated volume came to 2.53 billion shares, compared with 2.60 billion shares Wednesday.

The Russell 2000 index of smaller companies gained 15.38, or 2.07%, to 757.09.
Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

http://www.usatoday.com/money/markets/us/2006-10-12-stocks-daily_x.htm?csp=15

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There seemed to be a couple people here who were hoping and cheering for an economic slowdown, but ladies and gentlemen, what we really have here is the Goldilocks economy - not too hot, not too cold, which is perfect because we can now look forward to an economy that will continue its expansion without fears of contraction or overheating for the foreseeable future.

Deficits plunging, gas prices plunging, inflation almost non-existent, unemployment at a level most economists would call "full-employment" . . . is it any wonder the Democrats seem to have nothing else on their minds but Tom Foley's naughty emails?

Next month we will enter our sixtieth straight month of economic expansion. Five straight years - that would put us halfway to the record 10-year expansion that began under the elder President Bush.

My question then, is do you think that if the Democrats regain control of the House and Senate, that they could wield enough power to raise taxes high enough to wreck the economy?

Personally, I think we can rest assured that for the next two years, President Bush is not going to allow a Democratic Congress to do anything to derail the path to prosperity that he set this economy on. I've watched the president long enough now to know how he'll probably confront a hostile Democratic congress - to paraphrase from an earlier Bush quote - you're either with the expanding economy or you're against it and if you're against it, frankly I could care less if it takes us to gridlock and a government shut-down.

[justpassingthrough]

There's a real lack of celebration on Wall Street considering this is a record close, that's mostly because the economy really isn't doing as well as the DOW suggests.

I guess even hollow optimism is still optimism, and that can always help on Wall Street.

[flamboyant]

justpassingthrough wrote: There's a real lack of celebration on Wall Street considering this is a record close, that's mostly because the economy really isn't doing as well as the DOW suggests.

I guess even hollow optimism is still optimism, and that can always help on Wall Street.

I don't see how you can call five record closes over the last two weeks "hollow optimism".

The real celebration, however, is probably being reserved for when the Dow hits 12,000.