By JONATHAN CHENG
The Dow Jones Industrial Average vaulted over 12000 for the first time in almost three years, as investors digested President Barack Obama’s State of the Union address and awaited the results of the Federal Reserve meeting.
The Dow was up 28 points, or 0.2%, at 12005 in afternoon trading, restrained by disappointing earnings from Boeing. Leading on the upside was DuPont, up 3%. A finish above 12000 would reclaim a level that the blue-chip index last surrendered in June 2008.
The Nasdaq Composite Index rose 22 points, or 0.8%, to 2742, while the Standard & Poor’s 500-stock index rose seven points, or 0.5%, to 1298, putting it on the cusp of 1300, which it last held in August 2008.
The traversing of 12000, while temporary, was the latest reminder of the durability of the stock market’s bull run on a day dominated by headline news from the government and the Federal Reserve, whose massive interventions helped propel markets to the current levels.
The Dow made its first pass at 12000 in 2006, as credit expansion fueled a home-buying binge that eventually ended in the 2007-2008 housing bust. From a peak of 14198.10 in October 2007, the market tumbled to a March 2009 low of 6469.95, wiping out more than half of the blue-chip index’s market capitalization.
Traders work on the floor of the New York Stock Exchange Jan. 26.
.However, a combination of fiscal and in particular monetary stimulus helped fuel optimism in the market. Since the Federal Reserve made clear its plans to embark on a second massive wave of asset buying last August, the market has climbed nearly 20%.
Still, the bull market’s reliance on the Fed has had some investors questioning the durability of the rally. Barbara Marcin, portfolio manager of Gabelli Blue Chip Value Fund, said that while 12000 was an important landmark, “I’m happy, but I’m also worried.”
“I think we have some very difficult choices to make in the next year or two and that’s not being reflected in anyone’s speeches or rhetoric,” she said. “I don’t see the rally as being very firm because we’re taking away a lot of the stimulus.”
In the State of the Union speech Tuesday night, President Obama challenged lawmakers in both parties to rise above partisan divisions to tackle problems that will enable the U.S. to compete in the global economy. Among his proposals were calls for Congress to lower the corporate tax rate by closing industry-specific loopholes and find spending cuts across the government. The president also called for a five-year freeze on nondefense discretionary spending.
Wednesday morning, data on new-home sales came in much stronger than expected, pushing the market higher. Sales increased 17.5% from the prior month, rising to a seasonally adjusted annual pace of 329,000 homes. The increase was driven by a nearly 72% jump in the western U.S. Economists expected an increase to an annual rate of 299,000. The median sales price for a new home sold in December was up 8.5% from a year earlier.
“The positive home numbers correlate well with the consumer confidence numbers that came out earlier,” said Chip Cobb, senior vice president at Bryn Mawr Trust Asset Management. Still, Mr. Cobb remained concerned about unemployment, saying he expects the jobless rate to stay above 9% this year.
“We’ve come light years from where we were two years ago, but I don’t think I’ll be able to say that again two years from now,” he said. “Things are improving in 2011, but going into 2012, I’d feel dramatically more cautious.”
Investors still await the latest statement from the Federal Open Market Committee at 2:15 p.m. Eastern time. The market will be watching for confirmation that the central bank still sees the economy as improving, but is still in need of its stimulus. Investors also are curious to see how many dissenters there will be to the continuation of the quantitative-easing program, given that there will be a different mix of Fed presidents voting. Just one or two of the Fed presidents are expected to dissent, so no policy changes are likely.
Leading the way were materials and energy stocks. AK Steel Holding rose 5.8%, Cliffs Natural Resources climbed 5.5% and U.S. Steel added 3.1%. Halliburton surged 6.8% and Baker Hughes advanced 5.3%.
The Dow Jones Industrial Average goes above 12000 for the first time since June 2008, pushed over by the latest housing data, as the market digests loads of earnings reports and awaits the latest statement from the Federal Reserve. Michael Derby, Kristina Peterson and George Stahl report.
.Among the day’s slew of earnings announcements, aerospace giant Boeing posted an 8.2% decline in fourth-quarter profit as revenue and margins slid. Boeing offered a 2011 profit forecast well below consensus expectations, pushing shares down 2.9% to make it the steepest decliner among the Dow’s 30 components.
United Technologies traded flat after the maker of Otis elevators and Pratt & Whitney plane engines reported a 12% rise in profit as sales climbed 6.3%, topping analysts’ estimates. Revenue increased at five of the company’s six segments.
Airline stocks were bolstered by hopes that carriers will be able to continue increasing airfares amid rising passenger demand. US Airways Group soared 11% after swinging to a fourth-quarter profit, despite significantly higher fuel prices amid a rebound in demand and cost controls.
United Continental Holdings jumped 8.3% as revenues increased more than expected on rising traffic and capacity. Even so, the company—reporting combined results for the first time since October’s merger between UAL Corp.’s United Airlines and Continental Airlines—reported a widening loss.
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.American Airlines parent AMR rose 2.6%. Delta Air Lines added 2.5%.
Xerox tumbled 7.9% after fourth-quarter earnings declined 5%, hurt by restructuring costs and a modest first-quarter earnings outlook.
SAP gained 2% in New York after Europe’s largest software maker showed operational strength, despite taking a fourth-quarter hit to cover the costs of its lawsuit with rival Oracle. The German company said it would raise its dividend for 2010 by 20%, and it expects sales and profit growth in 2011.
Yahoo fell 3.3% after the Internet search company late Tuesday gave a current-quarter revenue forecast that fell short of Wall Street’s expectations.
Toyota Motor shares shed 1.7% in New York after the auto maker said it was recalling more than 1.7 million vehicles worldwide to fix problems, including fuel-system defects.
The euro slipped to $1.3668, from $1.3685 late Tuesday. Oil rose, while gold edged down. Treasurys slumped broadly, pushing the yield on the benchmark 10-year note to 3.417%.
Write to Jonathan Cheng at firstname.lastname@example.org