Stocks were sharply higher Thursday on a report the U.S. economy grew much faster in the second quarter than economists were expecting.
The good economic news lifted major indexes early on Thursday, but stocks really rallied only after the price of oil fell despite the threat that Hurricane Gustav poses to oil production in the Gulf of Mexico.
October West Texas Intermediate crude oil futures, which surged to a high of $120.50 per barrel at the outset of trading, ended $2.56 lower at $115.59 per barrel. Traders were reportedly betting that, even if the storm disrupted oil production, the government would tap the U.S. Strategic Petroleum Reserve.
For oil prices, "the trend seems to be down at this point," says John Wilson, chief technical strategist at Morgan Keegan. He predicts any rally for crude oil due to weather concerns would quickly deflate.
Bonds were lower after a lackluster $22 billion five-year auction. The dollar index and gold prices moved higher.
On Thursday, the Dow Jones Industrial Average rose 212.67 points, or 1.85%, to finish at 11,715.18. The broader S&P 500 index added 19.02 points, or 1.48%, to end the session at 1,300.68. And the tech-heavy Nasdaq composite index gained 29.18 points, or 1.22%, to close at 2,411.64.
Trading volume was light. On the New York Stock Exchange, 25 stocks traded higher for every six that declined. The ratio on the Nasdaq was 21-8 positive.
The U.S. gross domestic product grew at a 3.3% pace, revised up from the 1.9% in previous reports. A $85.4 billion jump in exports added more than three percentage points to the growth rate.
"The growth data are even better than many expected and again counter beliefs the economy was in recession in the first half of the year," Action Economics said. Standard & Poor's economist David Wyss said the "momentum going into the third quarter is clearly greater, and could result in a significant upward revision to 2008 real growth estimates."
Zach Pandl of Lehman Brothers, however, said "it is too soon to turn optimistic as the economy faces importantly challenges in the months ahead." He expects "weak consumer fundamentals" in the second half of the year as the effects of federal stimulus checks fade, while export growth will probably cool as the global economy slows and the U.S. dollar strengthens.
In other economic news Thursday, U.S. jobless claims fell 10,000 to 425,000 in the week ended Aug. 23. Continuing claims rose 64,000 to 3.4 million, the highest pace since November 2003.
Among stocks in the news, MBIA Inc. (MBI) shares surged after the company announced that its insurance subsidiary, MBIA Insurance Corp., has agreed to reinsure a portfolio of U.S. public finance bonds insured by Financial Guaranty Insurance Company with total net par outstanding estimated to be approximately $184 billion as of September 30, 2008. MBIA will receive unearned upfront premiums, net of a ceding commission paid to FGIC, of about $741 million in connection with the reinsurance.
Sears Holdings Corp. (SHLD) posted earnings of 21 cents per share, vs. $1.15 a year ago, as Sears Domestic's same-stores sales dropped 6.7% and Kmart's same-store sales fell 5.6%. Total revenue at the firm fell 4.1%.
UAL Corp. (UAUA), the parent of United Airlines, reportedly plans to cut 1,550 flight attendant jobs.
H&R Block (HRB) raised its quarterly dividend 5.3%.
Fannie Mae (FNM) chief executive Dan Mudd announced a series of executive appointments, including a new chief financial officer and chief risk officer. The new executives will implement a capital management and credit loss reduction plan for the the troubled mortgage financier.
Williams-Sonoma (WSM) posted earnings of 8 cents per share, vs. 23 cents a year ago. Same-store sales fell 12% and total sales dropped 4.6%. The retailer expects same-store sales to fall 13.5% to 15.5% in the third quarter.
Tiffany & Co. (TIF) reported earnings of 63 cents per share, vs. 29 cents a year ago. Same-store sales fell 1% and total sales rose 11%.
Del Monte Foods (DLM) posted a loss of 4 cents per share, vs. earnings of 1 cent a year ago. Higher costs offset a 16% rise in sales.
Major European stock indexes were higher Thursday. In London, the FTSE 100 index gained 1.32% to 5,601.20. In Paris, the CAC 40 index rose 2.02% to 4,461.49. Germany's DAX index gained 1.57% to 6,420.54.
Major Asian indexes were mixed. Japan's Nikkei 225 index rose 0.12% to 12,768.25. In Hong Kong, the Hang Seng index fell 2.29% to 20,972.29.
Treasuries fell in price following the higher-than-expected U.S. GDP report. The 10-year note was lower at 101-26/32 for a yield of 3.78%, while the 30-year bond fell to 102-03/32 for a yield of 4.37%.