The Dow Jones Industrial Average gained 187 points to set a record best one day gain for 2007. A survey suggesting moderate growth and quelling inflationary pressures helped ease bond rates back from their 5 year highs which rallied stocks. As bond rates go up, stock prices tend to fall because in essence it’s a safer bet to be in bonds than equities if the rates are rising.
In the DJIA, 29 stocks advanced including Alcoa Inc. (AA), Boeing Co. (BA), Caterpillar Inc. (CAT), Citigroup Inc. (C) Dupont (DD), General Motors Corp. (GM) and Intel Corp. (INTC).
Also helping this rally were retail sales for May which were up 1.5%. More importantly, the CPI (Consumer Price Index) and the PPI (Producer Price Index) figures come out on Friday. Should these numbers turn out bad, investors will be expecting the Federal Reserve to raise rates in order to combat inflation. Should the Fed instead decide to cut rates we may see some unsettling trouble in the market.
Friday is also options expiration so there is going to be much volitility in the market as shorts cover their losses and gainers take money off the table.
Elsewhere in the market, both crude oil futures and gold were down for the day due to a stronger dollar.
Goldman Sachs (GS) and Blackstone Group both put an $11.4 billion bid for Biomet (BMET) while Ameritrade (AMTD) dropped another $.36 cents under activist investor pressure reported earlier in the week.
I expect a strong opening Thursday as options expire and investors revel in the good news about inflation.
