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Dow Gains 200 Points on GDP, Oil

Published: Thursday, 28 Aug 2008 | 5:17 PM ET

Text Size

By: Cindy Perman
CNBC.com Staff Writer

Stocks rallied to the finish Thursday, egged on by stronger-than-expected GDP growth and a drop in oil prices.

The Dow Jones Industrial Average rose 212.67, or 1.9 percent, to close at 11715.18. The S&P 500 gained 1.5 percent and Nasdaq advanced 1.2 percent.

Major U.S. Indexes

.DJIA

.NCOMP

.SPX

Second-quarter GDP was revised to show 3.3 percent growth, up from the prior estimate of 1.9 percent. Economists had expected to see 2.7 percent growth. The third and final reading will come next month.

A huge part of GDP growth came from trade, which added 3.1 percent.

"Wow!!" Robert Brusca, of Fact and Opinion Economics, said of the trade contribution. That's "a huge number," he said. "Without trade, U.S. GDP would have limped ahead by 0.2 percent."

Still, GDP is growing by 2.2 percent year-over-year, Brusca points out — "too fast for a recession."

'Fast Money' Web Extra:

Toyota Puts on the Brakes

The day's rally went against historical precedent, where the Thursday before Labor Day is typically negative as traders clear out ahead of the weekend. In the past 11 years, the market has been down 10 times on this day. Well, now that stat is down 10 of the past 12.

Volume on the New York Stock Exchange was 956 million, about half the daily volume. That's been the standard this week, but when you look at the month historically, this is even low for August. Seems there's enough uncertainty out there with consumer spending and credit issues that a lot of traders are opting to just stay on the sidelines.

Twenty-nine of 30 Dow components ended higher, with the exception being Coca-Cola [KO Loading... () ] after Credit Suisse downgraded the beverage maker's stock to "neutral" from "outperform," saying the company is coming under increased pressure to restructure its North American operations, something that would be harder for Coke than for rival Pepsi [PEP Loading... () ], and that a projected dollar recovery could crimp earnings growth. (Click here to track the Dow components.)

Coke shares skidded 1.3 percent. Pepsi finished flat.

Financials got a boost from Fannie Mae [FNM Loading... () ], which announced a sweeping management shake-up in an effort to come to grips with mounting credit losses and a shrinking capital base. Lehman Brothers said Fannie's capital and reserves are better than the market perceives.

The S&P financial-sector index jumped 4.5 percent. Financials accounted for four of the five top gainers on the Dow: Bank of America [BAC Loading... () ], American Express [AXP Loading... () ], AIG [AIG Loading... () ] and Citigroup [C Loading... () ].

FOR INVESTORS

Shares of both Fannie Mae and Freddie Mac [FRE Loading... () ] continued to rally. Fannie Mae is up about 80 percent from its intraday low of $4.40 on Friday, while Freddie Mac shares have doubled from their low of $2.50 that day.

Shares of MBIA [MBI Loading... () ] were the biggest percentage gainer on the NYSE, jumping 35 percent, after the bond insurer agreed to take over $184 billion of municipal bonds currently backed by FGIC, providing additional stability to bond holders and maybe helping it avoid insolvency.

Lehman Brothers [LEH Loading... () ] plans to lay off 1,500 employees, or 6 percent of its work force, the New York Times reported. Its shares rose 7.4 percent.

The GDP report boosted large industrial companies. Dow industrial Caterpillar [PEP Loading... () ], often viewed as a gauge of the economy, climbed 3.1 percent.

Boeing [BA Loading... () ] gained 2.8 percent after the aerospace giant made its "best and final offer" to its largest labor union in an attempt to avert a strike. Boeing said it would provide employees with an average of $34,000 in additional wages and incentives over three years. The company also withdrew its plan to discontinue early retiree medical coverage for employees hired after 2010. A union rep said the group did not yet have a response as they were still poring over the 300-page document.

Of course, Tropical Storm Gustav, which is readying to move back to hurricane status and heading toward the Gulf Coast, continued to hover over the market.

Crude oil [US@CL.1 Loading... () ] dropped more than $2 to settle at $115.59 a barrel after the EIA said it would release additional barrels of crude from its supply if Gustav hits Gulf operations. Earlier, oil topped $120 a barrel.

Gulf energy companies braced for Gustav's arrival. Shell Oil [RDS.B Loading... () ], which has the largest offshore operations, began shutting output Thursday, working to evacuate all of its 1,300 Gulf of Mexico workers by Saturday. Anadarko plans to have all non-essential workers evacuated from offshore operations by Saturday and will have production shut down by Sunday.

The dollar rose against the euro after oil began to tumble. Earlier, the U.S. currency had come under pressure as European Central Bank officials indicated inflation worries persist in the euro zone.

The U.S., Europe and Japan planned a joint intervention to rescue the dollar when it was plunging in March when Bear Stearns collapsed, the Nikkei business newspaper reported. The paper did not say whether a certain level for the dollar was envisaged.