Wall St. Reacts to Budget Crisis With a Yawn : Stocks: The Dow closes 13.12 points higher, but traders see an indecisive market that has failed to react to moves in Washington.
After a sharp morning jump, stock prices closed only slightly higher Monday in a muted reaction to the House of Representatives’ passage of a deficit-reduction plan.
Some traders viewed the day as another sign that stocks are in an indecisive transition phase--but one that will soon lead to a major break higher or lower.
The Dow Jones industrial index gained 13.12 points to 2,523.76. The index had been up more than 37 points early in the day, but the rally faded later as oil prices rose again and the dollar plunged.
Winning stocks outpaced losers 822 to 627 on the New York Stock Exchange. However, volume totaled just 99.47 million shares, third lowest this year and down sharply from 153.38 million on Friday. Trading was slow because banks and some other financial institutions were closed for the Columbus Day holiday.
Many investors have been expecting fireworks on Wall Street out of the budget debate. But the stock market’s net reaction to the crisis in Washington has mostly been a yawn:
* After the House late last Thursday failed to ratify the budget pact hammered out by White House and congressional negotiators, the Dow plunged more than 50 points in early trading Friday, only to recoup most of the loss later in the day. The Dow finished off just 6.19 points Friday.
* Similarly, the budget vote in the House early Monday helped spark the early Dow rally, but the excitement soon died down.
Many big investors say a deficit-reduction agreement is important, but that it is hardly the deciding factor for investors considering buying or selling stocks today.
“The major problems facing the market really haven’t been solved,” said David Holt, technical analyst at Wedbush Morgan Securities in Los Angeles.
Most important, with or without a budget pact investors have to weigh the potential severity of the current economic downturn, the continuing weakness of the dollar and the threat of Mideast war.
Where the budget issue can have an immediate impact is on interest rates. It’s expected that passage of a budget bill will lead the Federal Reserve to cut rates to help the economy. Some analysts continue to believe that a drop in rates would be the catalyst the market needs to rally decisively.
“What the Fed does is more important than the budget,” said Gene Jay Seagle, analyst at Gruntal & Co. in Stamford, Conn.
Seagle is among the minority of analysts who believe that the market is bottoming now and the next move will be up. “Whatever real liquidation (of stocks) is in this bear market, you’ve already had it,” he contended. All the market needs is a cut in interest rates, Seagle said, noting that the London stock market has soared since rates fell there late last week.
The Financial Times 100-share index in London jumped 57.7 points, or 2.7%, to 2,201.6 Monday, after rocketing 73.5 points Friday.
Merrill Lynch & Co. strategist Robert Farrell said Monday that he, too, expects the market to rebound by the end of the year. Historically, a severe drop in a given quarter has been followed by a significant rise in the subsequent quarter, he said.
Even so, Farrell said the picture is gloomier longer-term, and a brief rebound won’t end the bear market.
Other more bearish analysts expect another downward spiral in stock prices to begin soon, without a rebound of any kind. With the economic slowdown just beginning here, they say, U.S. investors are more likely to react this month to disappointing corporate profit news than to a cut in interest rates that already is widely anticipated.
The market’s reaction to earnings reports so far this quarter suggests the selling will be relentless for every company that disappoints.
Monday, investors continued to dump insurance stocks in the wake of Travelers’ disclosure Friday of real estate investment losses. Travelers plunged 2 to 14 3/8 on Monday, after falling 4 1/2 on Friday. Other insurance losers Monday included Aetna, down 1 5/8 to 32, Argonaut, off 2 3/4 to 61 1/4, and NWNL, off 3/4 to 14 1/4.
Other market highlights:
* Food and drug stocks led the market higher, as investors continued to seek safe earnings bets. Upjohn rose 1 7/8 to 36 3/4, Bristol Myers added 1 1/4 to 60 3/4 and Kellogg gained 1 1/2 to 67 1/8.
* Dow Jones slumped 3/4 to 22 3/4. The firm reported third-quarter net income down 18% from last year.
* MCA dropped 2 1/8 to 58 7/8 as traders continued to grow impatient with the firm’s merger talks with Matsushita Electric.
* Defense stocks rallied again. McDonnell Douglas gained 1 3/4 to 50 3/8, Martin Marietta rose 1 1/4 to 39 3/8 and Loral jumped 1 to 31 1/2.
* Strength in natural gas stocks helped send the Dow utility index up 1.5%. Consolidated Natural Gas jumped 2 1/2 to 51.
In Frankfurt, Germany, the DAX index soared 73.77 points, or 5.3%, to close at 1,465.53 in a rally sparked by strong local orders.
In Tokyo, the key Nikkei index finished up 802.35 points, or 3.5%, at 23,630.00, gaining on Friday’s rally of 549.46 points. The surge in the yen was credited.
