USA: In U.S. stocks, the Dow Jones industrial average rallies to an all time high as oil prices fall

The Dow Jones industrial average closed at a record high on Tuesday (October 3, 2006), crossing a threshold set in January 2000, as investors bet that sliding crude oil prices will stimulate consumer spending. Falling crude oil prices prompted investors to buy shares of consumer and industrial companies, but without the impetus of new economic data, U.S. Treasury debt prices and the dollar were little changed from Monday. Hugh Johnson of Johnson Illington Advisors said the move higher was due to market fundamentals that were "very, very positive." "Investors are concluding that the economy is going to land softly, that we're not going to have a hard landing or a recession. The rate of inflation - there's evidence it's moderating and should continue to moderate, particularly with the decline in energy prices and materials prices. And the Federal Reserve is not going to raise short-term interest rates any time soon, in fact some are now forecasting the Federal Reserve will lower interest rates as we move into 2007," said Johnson. The Dow average gained 56.83 points points, or 0.5 percent, at 11,727.18 after climbing as high as 11,758.95 during the day, passing both the previous closing and intraday records set on Jan. 14, 2000. Boeing Co., Wal-MArts Stores Inc. and United Technologies Corp. led the Dow's advance. The Standard & Poor's 500 Index was up 3.04 points, or 0.2 percent, at 1,334.36. The Nasdaq Composite Index was up 6.04 points, or 0.3 percent, at 2,243.64. Meanwhile, U.S. crude oil prices fell to seven-month lows, dragged down by a inventory glut and fading threat of hurricanes. November crude fell $2.33 to $58.70 per barrel on the New York Mercantile Exchange. Oil prices have fallen 24 percent in the past two months. September car sales figures released on Tuesday also did little to promulgate the economic slowdown scenario. Analysts said September car sales were running above forecasts. Johnson also said that as opposed to the highs the U.S. stock market reached in 1999/2000, investors today are much more realistic about future market moves than they were six years ago. "I think investors are still a little bit cautious. We'll continue to take one step forward, maybe a half a step back. We'll make progress, we'll go in a positive direction but it's not going to be in big strides the way it was in 1999 and early 2000," said Johnson. What was good for the market on Tuesday was generally was bad for energy sector stocks though, with falling crude oil prices giving investors a reason to sell the stocks of some oil producers and drillers. Merrill Lynch cut its rating of the energy sector to "underweight," saying earnings growth and pricing power have eroded. Exxon Mobil Corp.'s shares dropped 2.4 percent, making the stock the biggest drag on the Dow and the S&P 500. ConocoPhillips shares fell 4.3 percent after the oil producer said it expects third-quarter production to be about 5 percent lower than in the second quarter. It was the second biggest drag on the S&P 500 with Chevron Corp., down 2.3 percent, coming in third.

ITN Source | October 4, 2006

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