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Stocks End at New Multi-Year Highs; Banks Up

Wednesday, 5 Jan 2011 | 4:21 PM ET

Stocks closed at new multi-year highs Wednesday as investors cheered a handful of positive economic reports about jobs and service sector growth, and commodities turned higher.

The Dow Jones Industrial Average rose 31.71 points, or 0.3 percent, to close at 11,722.89, the highest close for the index since Aug. 11, 2008. The blue-chip index had eked out a new highin the previous session even a broad range of commodities came under pressure.

American Express , Disney and Bank of America led blue-chips higher, while Intel and Wal-Mart fell.

The S&P 500 rose 6.36 points, or 0.5 percent, to close at 1,276.56, the broad index's highest close since Sept. 2, 2008, while the Nasdaq gained 20.95 points, or 0.8 percent, to close at 2,702.20, the tech-focused index's highest close since Dec. 26, 2007.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell to 17.

Most key S&P sectors advanced, led by financials, consumerdiscretionary and telecom.

"This market wants to take a breather, but it is literally getting barraged daily by, dog-gone it, good news," said James Paulsen, chief investment strategist at Wells Capital Management.

The same appears to be true for commodities, Paulsen said, noting that a 1 percent gain in the trade-weighted value of the dollar would typically send the Reuters-Jefferies Commodities Research Bureau Index down, but instead the CRB was up Wednesday.

"It's a testament to how much stronger real growth is," Paulsen said.

Among commodities, copper, often seen as a bellwether for economic activity because of its multiple uses, rebounded after trading off on Tuesday. Gold prices fell near $1,373 an ounce.

Oil prices reversed earlier losses, and closed above $90 a barrelafter a government report showed that inventories fell by about 4.2 million barrels. Earlier this week, the API, an industry group, reported a 7.5 million barrel drop in crude inventories for the week ended Dec. 31.

The markets started the day in the a slump, following a downturn overseas, as international investors weighed the continuing concerns about economic growth expressed by Federal Reserve officials in their December policy-setting meeting, as well as sliding commodity prices, particularly in industrial metals, said Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland.

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"The market has been following copper and other industrial metals, so the market started lower," Kruszenski said. But with good economic news on the job front, he said, "I wouldn't be surprised to see the market up on the day."

Financials led the market higher, rising more than 1 percent, with gains by big banks such as JPMorgan and Citigroup .

Alcoa ended higher despite a downgrade by Citigroup to "hold." Other materials stocks lagged, including Newmont Mining and Freeport McMoran .

First Solar also rose slightly after news the renewable energy company will partner with China Guangdong Nuclear Solar Energy Development to build a solar field in China's Inner Mongolia region. The companies say the 2-gigawatt project will be the world's largest solar-energy project.

On the tech front, shares of Qualcomm and Atheros climbed after news Qualcomm agreed to buy the semiconductor maker for $45 a share.

Meanwhile, Qwest Communications slipped after Argus Research cut the Internet communications provider to "sell" from "buy."

Apple shares gained after Wedbush started coverage of the iPod maker with an "outperform" rating and a price target of $405.

Google advanced after Canaccord genuity started coverage of the search engine giant with a "buy" rating and a price target of $750.

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Meanwhile, the annual Consumer Electronics Show (CES) kicked off in Las Vegas today and buzz is already building about the hot new devices and services that will grab the attention of consumers and investors.

Ahead of the show, shares of Research in Motion spiked more than 4 percent, although it was unclear what sparked the move.

Earnings have started to trickle in. Mosaic rose after reporting a big gain in profit on a surge in sales after the market closed on Tuesday.

But Family Dollar tumbled after the discount retailer reported a lower-than-expected profiton compressed margins and higher freight costs.

In other news, retailers have enjoyed a strong holiday season for sales, according to MasterCard SpendingPulse. Both apparel and high-end items saw strong sales growth in December, the new report said.

BJ's Wholesale Club declined after news the big box retailer will close five stores and cut hundreds of employees. The firm—considered a takeover target—also reported disappointing same-store sales for December.

Walgreen's rose despite reporting disappointing same-store sales as pharmacy sales fell short of expectations.

Borders rose slightly after news in the New York Times that the struggling bookstore chain is talking with publishers about converting deferred payments into interest-bearing debt. The Times also said people close to Barnes & Noble would prefer to focus on digital growth rather than a merger with Borders.

Best Buy shares climbed following rumors that Pershing Square's Bill Ackman may be either acquiring or considering the acquisition of a stake in the electronics retailer.

Disney gained after Goldman Sachs added the media and entertainment conglomerate to its "conviction buy" list, citing an expected growth rebound in the company's parks division.

Estee Lauder shares got a lift from a ratings upgrade by UBS Securities to "buy" from "neutral," although Avon Products and Colgate Palmolive fell after being downgraded to "neutral," from "buy."

Volume on the consolidated tape of the New York Stock Exchange reached 4.7 billion shares, with 1 billion changing hands on the NYSE floor. Advances led declines about 3 to 2.

On the economic front, the ISM services sector index rosein December at the fastest pace in more than four years. However, the employment component of the report fell, while new orders jumped.

Meanwhile, private employers added 297,000 jobs in December, according to the ADP Employer Services report, far outpacing the 100,000 estimate by economists surveyed by Reuters. The previous month, private employers had added a revised 92,000 employees, slightly less than the 93,000 originally reported.

And planned layoffs in December fell to the lowest level since 2000, with just 32,000 furloughs anticipated, according to outplacement firm Challenger, Gray & Christmas.

Also, mortgage applications were mixed at the end of the year as rates reached seven-month highs. A seasonally-adjusted index of mortgage application activity rose 2.3 percent for the week ended Dec. 31, and fell 3.9 percent the week before.

European shares closed down with as mining shares retreated. Portugal saw the yield on its 6-month T-bills rise at a debt auction to raise 500 million euros ($662.6 million).

On the Calendar This Week:

THURSDAY: Chain store sales, Monster employment index, jobless claims, natural gas inventories, Treasury STRIPS, money supply; earnings from Monsanto.
FRIDAY: Nonfarm payrolls report, consumer credit; Federal Reserve Chairman Bernanke speaks, Federal Reserve Vice Chairman Janet Yellen speaks.

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