Rally lifts stocks back to pre-recession levels
Dow jumps 244.52 to 13,292
The market's rise did hit a few roadblocks, however, most notably in the summer of 2011, when Congress was squabbling over raising debt limits and fear was mounting that the U.S. could be headed into another recession.
Over one four-day stretch in August, the Dow rose or fell by 400 points each day, the first time that has happened. The S&P 500 ended flat for 2011.
Then earnings rose again this year, fears over European debt crisis receded and stocks soared again. For the first three months of 2012, the Dow was up 8 percent and the S&P 12 percent, in each case the best start since the great bull market of the 1990s.
The question now is whether big companies can continue to post record profits. The immediate outlook has no shortage of potential obstacles.
The U.S. economy grew a tepid 1.7 percent in the April-June period, less than half the pace of late last year. Big overseas economies, like Brazil's and China's, are slowing. And many countries in the 17-nation eurozone are in recession.
On Thursday, the chief economist of the Organization of Economic Cooperation and Development said he expects even powerhouse Germany to fall into recession by the end of the year.
As if that's not bad enough, the dollar has strengthened against major currencies recently. That makes U.S. products sold in foreign currencies more expensive, cutting into overseas revenue.
Thursday's rally got momentum after the president of the European Central Bank unveiled a new program to buy government bonds from the region's struggling countries with the aim of lowering their borrowing costs. Mario Draghi said the program will have no set limit on how much it can buy.
That was just what investors needed to hear. The S&P 500 index jumped 28.68 points to 1,432.12. The Dow Jones industrial average surged 244.52 points to 13,292.
The Nasdaq composite index also reach a milestone, gaining 66.54 points to close at 3,135.81, its highest level in 12 years.
Germany's DAX and France's CAC-40 each rallied 3 percent. The gains were even bigger in Spain and Italy, the two largest countries to become caught up in the region's long-running government debt crisis. Spain's benchmark index soared 5 percent, Italy's 4 percent.
Traders shifted money out of U.S. Treasury bonds, considered one of the world's safest places to stash money, and the drop in demand lifted yields. The yield on the 10-year Treasury note rose to 1.67 percent, up from 1.60 percent late Wednesday.
In an encouraging sign for the American job market, a report from the payroll processor ADP said businesses added 201,000 jobs last month, the most reported by the survey since March.
Separately, the Labor Department said the number of people applying for unemployment benefits fell by 12,000 last week to 365,000. That figure won't affect the August jobs report, due out Friday, but could be a sign of a better hiring this month.
Even before Thursday's surge, the stock rally has been one for the record books.
Jim Paulsen, chief investment strategist at Wells Fargo Capital Management, published a report last month showing that stock prices have more than doubled in the 3 ½ years since hitting a recessionary low in March 2009. That surpasses every post-World War II rally after a recession over a similar period.
"We've been told from the start that this stock market was going to be low return and high risk, but it's turned out to be the best ever," Paulsen said Thursday. "Fear was way overdone."
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