NEW YORK -- After staying cool for most of the summer, the stock market finally heated up in August.
Wall Street rallied, with all the major indexes closing decisively higher for the month, ending the seesawing that has characterized the market since April, when worries about Internet stocks and higher interest rates sent stocks spiraling down.
The Dow Jones industrial average rose 6.6 percent during the month, while the Nasdaq composite rose 11.7 percent and the Standard & Poors 500 Index rose 6.1 percent and approached record territory.
While these gains were noted on Wall Street, they didn't get the kind of attention that the stock market received last year, when tech stocks were roaring and a 200-point rally in the course of a day became commonplace.
But many market watchers nonetheless say this rally is significant.
"Generally, August is not a market-friendly month. This year it surprised all. The broad market indices moved smartly higher and indications are that August was the best month ever in percentage gain for the Dow and Nasdaq," said Alan Ackerman, a senior vice president at Fahenstock & Co.
What made August different?
It wasn't trading volume, which was light as usual for this time of year. And corporate earnings reports during the month were in line with results released earlier in the summer.
And the majority of Internet stocks, which propelled the market higher in 1999 and earlier this year, haven't recovered from their sharp drop during the spring.
What did change, analysts said, was the perception of the Federal Reserve's efforts to slow economic growth to sustainable levels and reduce inflationary pressures.
Economic reports released throughout August pointed, for the most part, to less-rapid growth and easing pricing pressures. The Fed passed on a chance to hike interest rates Aug. 22, and is expected to refrain from raising rates until after the November presidential election.
"The prospect of interest rate increases from the Fed is no longer hanging over the market. Inflation is probably not going to emerge as an issue over the next couple of months ... all are favorable developments for the stock market," said Mike Moran, chief economist at Daiwa Securities America.
That possibility leaves Ed Yardeni, Deutsche Bank Securities' chief investment strategist, feeling somewhat optimistic about what lies ahead. He sees investing opportunities in financial services and utility stocks.
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