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Financial markets

Stock Market Rally Gains Momentum as Investors Return to the Market

Strategic Insights

— 2 min read

Tentatively at first, but then with increasing assurance, investors returned to the stock market this week. A 51-point surge in the Dow Jones industrial average yesterday marked the largest one-week gain in 19 months, stirring hopes of a sustained market rally. Analysts say the rally is fueled by stabilizing bond prices, a rising dollar, and a more optimistic picture of a sound, low-inflation US economy. Investors have begun to buy stocks again, encouraged by stabilizing market conditions and the potential for long-term financial assets to appreciate.

Key Takeaways:

  • The Dow Jones industrial average rose 51.16 points to 3,881.05, a 1.34 percent increase, making it the largest one-week gain in 19 months.
  • The broader indexes, including the Standard & Poor's 500 and the Nasdaq composite, also experienced significant gains, with the Standard & Poor's index rising 2.2 percent and the Nasdaq composite rising 2.8 percent.
  • Some analysts predict a short-term rally, citing temporary factors such as professional traders buying or selling shares to stem their losses, but others believe this is the start of a sustained market advance.
  • Investors held an increasing amount of cash, with some funds allocating up to 20 cents of every dollar to cash, but are now beginning to put their cash to work and buy stocks.
  • The market's move is significant, as the seven-month halt in the stock market's advance has frustrated millions of investors who have seen little to no growth in their individual stock portfolios or mutual fund investments.
  • Stock mutual funds have swelled by over $2.2 billion in the past week, according to AMG Data Services, with assets now totaling $754 billion.
  • The Dow has risen nearly 127 points this year, or 3.38 percent, despite a fractionally positive 1.31 point gain in 160 business days during the summer.

Statistics:

  • The Dow Jones industrial average rose 51.16 points to 3,881.05, representing a 1.34 percent increase.
  • The previous one-week record was nearly 107 points, or 2.9 percent, for the week that ended on May 20.
  • The Nasdaq composite index rose 2.8 percent, while the Standard & Poor's 500 index rose 2.2 percent.
  • The broader markets, including the New York Stock Exchange, showed above-average volume, with 305.6 million shares changing hands, 7 percent higher than the year's average of 286 million.
  • The American Stock Exchange market value index rose 2.44 points, to 449.56.
  • Of the 30 component stocks that make up the Dow industrials, 23 rose, led by Caterpillar, which rose 3 5/8, to 115 5/8.
  • Stocks in both Britain and France rose for the fourth day, with the Financial Times-Stock Exchange index in London rising 30.9 points, or nearly 1 percent, to 3,265.1.

Sources:

  • "Stock Market Rally Gains Momentum" (New York Times, date not specified)
  • AMG Data Services (source not specified)
  • Barton M. Biggs, chairman of Morgan Stanley Asset Management (citation not specified)
  • Jerry W. Mill, who helps to manage nearly $3 billion of stocks for Invesco Funds Group in Denver (citation not specified)
  • Matthew Avery, senior portfolio manager for the Franklin Group of Funds in San Mateo, CA (citation not specified)

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