Economic Optimism Lifts Stocks

Stocks staged a broad-based gain on Monday as investors awaited the results of stress tests on major banks and placed fresh bets on an economic recovery.

Economic data Monday were better than expected. Construction spending rose for the first time in six months during March, while pending sales of existing homes rose 3.2% in March.

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At 10:59 a.m., the Dow Jones Industrial Average was higher by 168.1 points. The Nasdaq Composite Index jumped 1.6%. The S&P 500 gained 2%, helped by gains in all its sectors. Basic-materials stocks jumped 4.7% as a group, while energy and financial stocks rose more than 3%.

Consumer names also fared well, extending a recent streak in which they've benefited from investors' qualified optimism that the U.S. economy's slide is slowing. The S&P 500's consumer-discretionary sector was up 3.1%.

In a note to clients on Monday, Ed Yardeni, president of Yardeni Research, noted that the S&P's consumer-discretionary sector has registered the biggest profit surprise so far in the first-quarter earnings season, which is more than two-thirds over. The discretionary names that have reported profits so far have more than doubled analysts' expectations, helping the S&P as a whole to post a 9.5% positive surprise, on pace for its best showing since early 1988.

Mr. Yardeni said that the results of the earnings season so far have been encouraging, though like many investors, he's skeptical that major indexes can continue their torrid run in the near term.

"A range-bound market seems more likely than either a bear or a bull market for a while, though I see more upside than downside down the road," he wrote.

Stocks were generally stronger overseas, with markets in Asia climbing after data showed an improvement in Chinese manufacturing activity. Hong Kong's Hang Seng Index jumped 5.5%, reclaiming the 16,000-point level for the first time since mid-October. Markets in Japan were closed for a holiday. In Europe, stocks made modest gains. Markets in the U.K. were also closed for a holiday.

Airline stocks rose on hopes that travel demand would withstand the swine flu outbreak. The World Health Organization moved closer to declaring the new strain a global pandemic, but health officials cautioned that declaring a pandemic doesn't mean the disease, which has proven mild outside of Mexico, is deadly to most people or will sweep the entire globe.

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Ronald York Jr., center, works on the floor of the New York Stock Exchange in New York May 4.

Delta Air Lines shares were up more than 9%, Continental Airlines rose more than 14% and Southwest Airlines climbed 3.1%. Cruise-ship operator Carnival gained 7.8%.

Financial stocks were generally higher ahead of the expected release later this week of the results of the government's stress tests of key banks. Citigroup was up 4% and Bank of America advanced 5.9%. The banks were reported to be seeking to raise $10 billion in capital each. U.S. Bancorp and Wells Fargo rose 6.5% and 10.4%, respectively, after Warren Buffett said they are strong banks.

General Motors rose 2.2% as Fiat Chief Executive Sergio Marchionne stepped up his plan to acquire a majority stake in GM's German unit Opel. Mr. Marchionne is expected to meet senior German government officials in Berlin on Monday. Fiat shares surged in European trading.

LATICONOMICS

Monday, May 4, 2009