The Dow logged a solid 130-plus gain Monday after Fed Chairman Bernanke signaled plans to leave rates low for a while but ended off its highs after banking analyst Meredith Whitney said the recent market rally is not rooted in fundamentals and the U.S. economy is likely to fall back into a recession next year.
Still, all three major indexes closed at new highs for the year as a weak dollar boosted commodity stocks and a government report showed retail sales rose in October.
The Dow Jones Industrial Average rose 136.49, or 1.3 percent, to close at 10,406.96. The S&P 500 gained 1.5 percent, closing above the key 1,1100 level for the first time since Oct. 2008, and the Nasdaq advanced 1.4 percent.
Earlier, Federal Reserve Chairman Ben Bernanke made a rare comment on the dollar— a subject he usually leaves to the Treasury Secretary. Essentially, he said the Fed is watching the dollar but will still likely leave rates low for some time.
"We are attentive to implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability," he told the Economic Club of New York.
Whitney, in an interview with CNBC just after 3pm ET, said she was disappointed that Bernanke didn't spell out how the Fed planned to exit "the biggest Fed program to date, which is the mortgage-backed purchase program."
"I haven't been this bearish in a year,"Whitney said. "I look at the board and every single stock from Tiffany to Bank of America to Caterpillar is up. But there is no fundamental rooting as to why these stocks are up—particularly in the consumer space."
Whitney, if you recall, was one of the first analysts to call the bubble in financial stocks.
Alcoa and ExxonMobil were among the leaders on the Dow as the dollar retreated following the Asia Pacific Economic Cooperation summit, where no currency agreement was reached with China.
Twenty-six of 30 Dow components finished higher. The decliners were: Bank of America , TravelersMicrosoft and Wal-Mart.
Oil advanced, settling at $78.90 a barrel, and gold hit a fresh high above $1,140 an ounce, settling at $1,138.60.
Retail sales rose 1.4 percentin October amid a jump in auto sales. Investors shrugged off a separate report that showed the Empire State Manufacturing Index fell to 23.51 from 34.57.
Adding to the optimism, Japan reported its GDP rose 1.2% from July to September, its fastest pace in more than two years.
Citigroup jumped on word that hedge-fund operator Paulson & Co. has taken a 300 million share stake in the bank, according to an SEC filing.
NBC Universal and CNBC parent General Electric rose as today represents the opening of the annual window for Vivendi to sell its stake in NBCU—with a deal between GE and Comcast for control of NBCU said to be close.
The optimism was muted somewhat as Lowe's, the No. 2 home retailer, reported a 30 percent decline in quarterly profit to 23 cents a share, just a penny below estimates. Larger rival Home Depot reports Tuesday.
Wall Street's major averages are coming off two straight weekly gains. Economic data and retail earnings are likely to present either the biggest barrier to further gains—or the biggest influence.
Still to come: Fed Vice Chairman Donald Kohn has an evening speech at 6:15 pm and Northwestern University's Kellogg business school in Evanston, IL.
Kansas City Fed President Thomas Hoenig has already been in the news this morning, telling an Abu Dhabi audience that the U.S. economy still faces "significant weaknesses."
Intel gained 2.1 percent after the chip giant raised its quarterly dividend by 12.75 percent.
Google has filed a revised settlement proposal for its litigation with authors and publishers over digital book rights. The original agreement was rejected by a judge following objections from the Justice Department.
Cisco has increased its offer for Norwegian videoconferencing-gear maker Tandberg by 10.7 percent, and says this new offer is its "final price."
Bristol Myers Squibb is planning to split off its nutrition unit Mead Johnson into a separate company.
And a new study finds the Abbott Labs cholesterol treatment Niaspan more effective and safer than Merck's Zetia.
TUESDAY: PPI; industrial production; Fed's Lacker, Pianalto speak; Geithner speaks; NAHB housing index; Earnings from Home Depot, Target and TJX
WEDNESDAY: Weekly mortgage applications; CPI; housing starts; weekly crude inventories; Earnings from BJ's, Limited
THURSDAY: EU chooses new president; Fed's Plosser, Fisher speak; Ghosn, Rattner speak; weekly jobless claims; leading indicators; Philly Fed; Geithner speaks; Earnings from Sears, Dell, Gap
FRIDAY: Fed's Plosser speaks; state-by-state jobs report
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