U.S. stocks surged Thursday, driving the Dow industrials to a record close on strong earnings from brokerages and other companies, as well as an improving outlook for the U.S. economy.
The Dow Jones Industrial Average closed up almost 100 points,breaking through 12,400 for the first time, while the Nasdaq rose and the S&P 500 hit a 6-year high.
The market was sparked by a burst of institutional buying tied to options and futures expirations Friday. "There's an expiration that's heavily weighted on the buyside," said a trader on a major institutional trading desk.
Positive momentum spurred a stronger-than-expected November retail sales reported Wednesday drove stocks ahead today. sharply exceeded economists' expectations, signaling that the U.S. consumer and economy than some had expected.
The stock rally gathered even more momentum in the afternoon after the New York Federal Reserve issued a report on manufacturing activity in New York state that was better than expected. The report, released a day early due to what the New York Fed said was a technical error, surprised and added buying interest.
CNBC's Rick Santelli said from the Chicago futures pits that the Fed report added to an already bullish environment for stocks because it signaled that manufacturing remains relatively healthy.
Also, with stock-index options expiring Friday, Santelli said that traders are rushing to buy underlying futures, which fuels the stock rally.
Traders say many institutions have been buying because they don't want to be on the wrong side of the market as the year comes to a close.
"As long as we have this huge wall of liquidity coming in, we should be able to sustain higher stock prices," Jack Ablin, chief investment officer at Harris Private Bank, said on CNBC's "Closing Bell." Ablin forecast that the market should be able to sustain higher stock prices into next year if that liquidity continues.
Bear Stearns and Lehman Brothers reported higher-than-expected fourth-quarter earnings, following on the heels of Goldman's record profits earlier in the week.
Bear Stearns reported its best quarter ever, with earnings of $4.00 a share versus the $3.36 consensus estimate. Lehman Brothers reported net revenue for the fourth quarter of $4.53 billion, with earnings of $1.72 a share. The results were ahead of the $1.68 analysts were expecting.
Occidental Petroleum and Baker Hughes, an oilfield services company, benefited from strong demand for energy and today’s run-up in crude oil prices. ExxonMobil, the world’s largest oil company, was also higher.
Costco , the nation's largest wholesale club operator, posted a fiscal first-quarter profit rise of 10%, injecting life into the shares.
Ciena, a maker of switching equipment for long-distance fiber optic networks, reported a fourth-quarter profit of $13.1 million, or 14 cents a share, compared with a year-ago loss of $252.9 million or $3.06 a share.
The CEO of Citigroup told analysts at its annual investors meeting that the company is not likely to make a large banking acquisition in the U.S. next year.
CNBC's Mary Thompson reported that CEO Charles Prince doesn't believe Citigroup's stock price reflects changes the company has made. She said Citigroup is forecasting mid- to high-single digit revenue growth in 2007.
On Friday, investors will be watching for the release of the Consumer Price Index and the latest figures on industrial production.
November’s Consumer Price Index is expected to increase 0.2% after a 0.5% decline in October. Non-food, non-core prices are expected to be up 0.2% in November after rising 0.1% in October.
Analysts look for a 0.1% increase in November’s industrial production following a 0.2% increase in October.
In Europe, London's FTSE-100 , the Frankfurt DAX and the CAC-40 in Paris all closed higher.
Asian stocks rallied in the afternoon session Thursday with Australian shares leading the advance after Qantas Airway's acceptance of a buyout offer boosted that market to a new record close.
Tokyo's Nikkei 225 Average closed stronger as exporters rose on a weaker yen and shares sensitive to domestic demand on the view that the Bank of Japan will not raise interest rates this month.