NEW YORK – Stocks are resuming their climb as investors get positive readings on two of the best gauges of the economy's health: consumer spending and corporate profits.
Major stock indexes rose more than 1 percent in midday trading Thursday, picking up where the market's rally left off earlier this week. The Dow Jones industrials put in their best back-to-back advance since July on Monday and Tuesday, rising 244 points, after two straight weeks of declines.
In a sign that consumer spending may finally be starting to recover, retailers last month saw their first sales gains in more than a year. A closely watched gauge of sales at major retailers showed an increase of 0.1 percent for September, compared with a 1.0 percent drop a year ago. While still tepid, it was the first monthly gain in the International Council of Shopping Centers-Goldman Sachs tally since July 2008, when the index was up 1.3 percent.
The upbeat mood on Wall Street was initially set after the close of trading Wednesday when Alcoa Inc. surprised investors with its first profit in nine months, which the aluminum company attributed to cost-cutting and rising sales to automakers. Alcoa also said it expects worldwide aluminum demand to increase 11 percent in the second half of the year.
One of the first major companies to report earnings, Alcoa's better-than-expected report and upbeat demand prediction reassured investors of a positive earnings season.
"Alcoa set the tone and backed it up," Michael Feser, president of Zecco Trading said.
A better reading on the labor market also raised investors' optimism. The Labor Department reported that new claims for jobless benefits fell to 521,000 last week, down from 554,000 the previous week and better than analysts had expected. It was the lowest level since early January. Continuing claims fell to 6.04 million, better than the slight increase analysts had expected.
The Dow rose 102.63, or 1.1 percent, to 9,828.21. The Standard & Poor's 500 index rose 12.22, or 1.2 percent, to 1,069.80, while the Nasdaq composite index rose 26.65, or 1.3 percent, to 2,136.98.
More than four stocks rose for every one that fell on the New York Stock Exchange, where volume came to 506 million shares, compared with 480.2 million at the same time a day earlier.
In other trading, the Russell 2000 index of smaller companies rose 8.99, or 1.5 percent, to 611.07.
Thursday's gains put the market's seven-month rally back on track, sending the major indexes toward their best weekly gain since early July after back-to-back weeks of losses. Investors had become discouraged in recent weeks by a stream of disappointing economic data, as improvements in areas like manufacturing slowed.
But this week, the market got a boost of confidence from signs of growth in the service sector and a positive analyst report on banks. An interest rate hike in Australia, meanwhile, was seen as a vote of confidence in the global economy.
"The way we will perform is two steps forward, one step back," said Michael Strauss, chief economist at Commonfund in Wilton, Conn. "But at the end of the day we are moving to higher prices."
Still, much depends on how the rest of earnings season goes. Investors question whether the market's more than 50 percent move off of 12-year lows in March can continue at such a rapid pace if earnings results don't back up the market's perception that the economy is on track for growth.
"The Alcoa number that came out after-hours was surprisingly good, but we have a lot of major companies, including the financials, that will be coming out in the next couple of weeks," said Robert MacIntosh, chief economist at Eaton Vance Management. "I wouldn't say we're in the clear."
Companies mostly beat modest earnings expectations during the second quarter because of cost-cutting measures, and investors now want to see actual revenue growth as a driver of profits.
The reports from retailers on Thursday offered fresh hope that sales will be better this quarter. Limited Brands Inc., which runs Victoria's Secret and Bath & Body Works, and accessories chain The Buckle Inc. both posted sales increases for September.
J.C. Penney Co. and Target Corp. raised their profit outlooks after reporting smaller-than-expected declines.
Limited Brands rose 74 cents, or 4.2 percent, to $18.57, while J.C. Penney added 31 cents to $35.22.
Alcoa jumped more than 3 percent, gaining 49 cents to $14.69.
Bond prices were mixed. The yield on the benchmark 10-year Treasury note fell to 3.16 percent from 3.19 percent late Wednesday. The yield on the three-month T-bill rose to 0.06 percent from 0.05 percent.
Commodities prices rallied as the dollar fell further against other currencies.
Gold hit another new record, rising as high as $1,059.60 an ounce. Oil prices rallied $2.68 to $72.75 a barrel on the New York Mercantile Exchange.
Overseas, Japan's Nikkei stock average rose 0.3 percent. Britain's FTSE 100 gained 0.9 percent, while Germany's DAX index and France's CAC-40 each jumped 1.3 percent.
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