Market Buoyed by Prospect of Stabilizing Rates
Stocks rallied Tuesday as investors seized on the latest retail sales report as evidence that the economy is slowing just enough to persuade the Federal Reserve to leave interest rates unchanged at its next meeting.
Investor optimism over the state of the economy helped the market break out of a slump that started after Wall Street investment firm Sanford Bernstein cut its rating and earnings estimates for Hewlett-Packard.
The Nasdaq composite index gained 83.15 points, or 2.2%, to 3,851.06, wiping out most of Monday’s loss. The Standard & Poor’s 500 rose 23.44 points, or 1.6%, to 1,469.44. The Dow Jones industrial average climbed 57.63 points, or 0.6%, to 10,621.84.
Eight stocks rose for every seven that fell on the New York Stock Exchange, but volume was weak.
Stocks headed upward at midday after Fed Chairman Alan Greenspan applauded the use of technology to enhance the productivity of American workers. In remarks before the New York Assn. for Business Economics, Greenspan said much of the improvement in productivity was due to basic changes in the economy, rather than temporary factors that could disappear.
While Greenspan did not discuss interest rates, many investors took his comments as a sign that the Fed is growing more comfortable with the pace of the economy’s growth.
“The market believes that we are near the end of this series of rate increases and that the Fed will be able to engineer a soft landing,” said Joseph Stocke, a portfolio manager at StoneRidge Investment Partners.
Treasury yields soared, however, after Federal Reserve Bank of New York President William McDonough warned that inflation might accelerate, saying it would be “foolish” to declare victory.
The 10-year yield rose to 6.11%, from 6.07% the day before, while the 30-year yield rose to 5.94% from 5.87%.
Among the equity highlights:
* In the tech sector, Intel rose $6.44 to $131.50 after prices for computer-memory chips soared again in Asia. Cisco Systems rallied $2.88 to $65, Veritas Software gained $9.75 to $135, and Tibco Software rose $9.31 to $74.38 after the company said Cisco will use its software for networking services.
But Hewlett-Packard sank $7 to $119 amid concern that its sales of printers and personal computers will miss forecasts.
* Merck rose $3.50 to $73.44 and American Home Products rallied $2.63 to $55.63 as investors bought companies whose profits are less affected by a slowing economy. Eli Lilly climbed $2.50 to $80.75 and Johnson & Johnson added $3.22 to $88.
* Cyclical stocks remained generally weak on concern that profits will fall as the economy slows. Deere slipped $1.41 to $40.31, Caterpillar eased $1.38 to $37.25, Ingersoll-Rand fell $1.19 to $43.25 and DuPont lost $2.03 to $47.25.
* Maytag gained $4.44 to $39 on renewed speculation that it could be bought by Sweden’s Electrolux, whose U.S.-traded shares dipped 19 cents to $31.94.
* Clorox rose $3 to $43.50 after being rated “buy” in new coverage by PaineWebber. Also getting analyst help: E.piphany, up $10.81 to $98.06; and Fastenal, up $7.56 to $55.19.
* On the earnings front, Kemet rose $8.81 to $38 after the company said it expects to beat estimates, but Sykes Enterprises slid $3.75 to $16.63 after warning of a shortfall.
So far 165 companies have issued second-quarter “pre-announcements,” according to First Call/Thomson Financial, and 48% have been negative, compared with the usual 55% at this point. It’s early in the season, however.
* Among Southern California stocks, Biosource International gained $1.50 to $8.63, Skechers USA rose $1.31 to $15.25 and Vitesse Semiconductor climbed $8.88 to $79.63, but MTI Technology dropped $1 to $9.13.
Market Roundup, C10-11
