Late Surge Pushes Stocks to New Heights

The Dow and Nasdaq hit summer 2001 levels as new money pours into the market after the 2003 rally.
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Updated from 4:05 p.m. EST

Stocks soared Monday as a late surge pushed the major indices to their highest closing levels in 2 1/2 years, following another round of strong earnings releases.

The

Dow

rose 134.22 points, or 1.3%, to 10,702.51, its highest close since June 2001; the

S&P 500

added 13.82 points, or 1.2%, to 1155.37, its biggest gain in two months and a new 22-month high; and the

Nasdaq

climbed 29.96 points, or 1.4%, to 2153.83, passing its recent 30-month high.

Volume on the

New York Stock Exchange

was 1.45 billion shares, while 1.94 billion shares changed hands on the Nasdaq. Advancers beat decliners by about 5 to 4 on the NYSE, and by about 2 to 1 on the Nasdaq.

Traders were at a loss to identify a specific catalyst for the rally, but several said money continues to pour into the market and also noted that the move was unusual with the

Fed

set to begin a two-day meeting tomorrow. In addition, Michael O'Hare, head of block trading at Lehman Brothers, said light volume was increasing volatility.

The blue-chip average was boosted by healthy gains in

Merck

(MRK) - Get Report

,

Hewlett-Packard

(HPQ) - Get Report

and

AT&T

(T) - Get Report

, all of which rose 2% or more.

Existing-home sales surged by 6.9% in December, easily topping the consensus forecast, to an annualized rate of 6.47 million units. Sales in 2003 hit a new record. The housing sector continues to be a key driver of growth, buoyed by persistently low mortgage rates.

Other Markets

Markets overseas finished down, with London's FTSE 100 lower by 0.3% to 4446 and Germany's Xetra DAX off 0.6% at 4129. In Asia, Hong Kong's Hang Seng lost 0.2% at 13,727.3 and Japan's Nikkei fell 0.9% at 10,927.6.

The 10-year Treasury note fell 14/32, yielding 4.13%, while the dollar was stronger vs. the European single currency, but weaker against the Japanese yen. One euro was worth about $1.2474 while the dollar was fetching 106.34 yen.

Technicals vs. Fundamentals

Today's late move aside, equities have been trading sideways in recent weeks, with little conviction in either direction. The bulls haven't been able to gain much traction after 2003's dramatic rally and the bears have been spinning their wheels as profit and economic reports continue to surprise to the upside.

With fundamental issues failing to move stocks of late, technical factors may offer the best insights into the market's direction over the next few months. Some technicians say the rally may still have legs, but surprisingly, one believes fundamentals will be the range buster, despite its recent inability to significantly influence the market.

"The market's dramatic recovery trend of the last 10 months continues to show strong upside momentum despite its apparent age," said Richard McCabe, chief market analyst at Merrill Lynch. "While an interim pullback could develop in coming months, the advance is not likely at a final peak yet."

Rick Bensignor, a technical strategist at Morgan Stanley, echoed this sentiment, but is convinced fundamentals will trump technical factors. "Our belief is that the market will keep its bull tone until some bigger macro factor changes the way of thinking."

Both McCabe and Bensignor, however, warn there could be rough patches ahead. "Sentiment indicators generally reveal a very high level of optimism, which can leave the market vulnerable to disappointing or negative news, but these measures are not good timing tools," added McCabe.

Movers

In earnings news,

Lexmark

(LXK)

said Monday it earned $1.05 a share in the fourth quarter, ahead of analysts' estimates for 92 cents a share. Revenue rose 13.4%. The shares added $5.66, or 7.2%, to $84.50.

American Express

(AXP) - Get Report

earned 60 cents a share in the fourth quarter, beating the consensus by just a penny; the company earned 52 cents a year ago. The stock climbed 99 cents, or 2%, to $50.95.

Schering-Plough

(SGP)

earned a penny a share in its quarter, excluding items, which was below analysts' estimates for 4 cents a share, on top of a 17.8% decline in revenue. The stock improved 33 cents, or 1.9%, to $17.85.

First-quarter earnings at

AmerisourceBergen

(ABC) - Get Report

were 95 cents a share, excluding items, which beat Wall Street's projections by a penny, on a 10.4% increase in sales. The company's shares lost 11 cents, or 0.2%, to $56.14.

Kimberly Clark

(KMB) - Get Report

easily surpassed analysts' expectations, earning 91 cents a share in its fourth quarter after posting a profit of 72 cents last year; the consensus estimate was 88 cents. Revenue at the consumer products company grew by 11% from last year. The stock gained $1.95, or 3.5%, to $58.50.

In research, Bank of America Securities initiated coverage of

Research In Motion

(RIMM)

with a buy rating. The stock climbed $5.61, or 6.6%, to $90.76.

Blaylock downgraded

Citigroup

(C) - Get Report

to hold from buy. Shares of Citigroup rose 61 cents, or 1.2%, to $50.93.

Time Warner

(TWX)

was upgraded at Credit Suisse First Boston to outperform from neutral; the broker also raised its price target to $23 from $18. The stock gained 9 cents, or 0.5%, to $19.07.

Tomorrow, the earnings calendar is packed as the fourth-quarter reporting season gathers steam again. Before the bell,

Caterpillar

(CAT) - Get Report

,

DuPont

(DD) - Get Report

and

Merck

(MRK) - Get Report

are all due to report. After the close,

Amazon.com

(AMZN) - Get Report

is expected to report a fourth-quarter profit of 29 cents a share, a 10 cent improvement from last year for the internet bellwether.

In economics, the Conference Board will release consumer confidence for January, which is expected to improve to 98.5 from 91.3. Also, the Fed will begin its two-day FOMC meeting and an interest rate decision is expected on Wednesday.