Markets / Your Money
Stocks rallied Tuesday, and bond prices rose--pushing yields on two-year Treasury notes close to eight-year lows--as investors sifted through conflicting data on the health of the U.S. economy.
Bond investors focused on a dip in July consumer confidence and a tumble in Chicago manufacturing, which bolstered the case for more Federal Reserve interest rate cuts.
“The data suggests there’s still a fair amount of weakness in the economy, and the Fed has said if it sees weakness, it’s going to keep combating it,” said John Roberts, head trader at Barclays Capital Group.
The yield on the two-year Treasury note--which moves opposite of its price--fell to 3.80% from Monday’s close of 3.85%. The yield on the benchmark 10-year Treasury fell to 5.05% from 5.07%.
Yields on two-year notes are approaching their lowest levels since October 1993, when the Fed held short-term rates at 3% to keep the economy from falling back into recession.
Bond gains were constrained by concern about upcoming supply and the expected release of two key economic reports this week, analysts said.
Today, the Treasury announces the terms and size of its next quarterly financing operation set for next week.
“The supply concern is looming fairly large because it’s not just the Treasury that’s selling,” said Jon Jacobs, senior bond strategist at IDEAglobal. “There’s talk that corporates are ready to jump in with more issuance.”
Also, the closely watched National Assn. of Purchasing Management report is due today. The Labor Department’s employment data for July are to be released Friday.
Stock investors, hungry for hints of economic strength after a dismal second-quarter earnings reporting season, focused on a Commerce Department report that said consumer spending rose 0.4% last month, beating expectations of a 0.3% rise.
“The numbers indicated that the consumer is still carrying the economy,” said Alan Ackerman, a market strategist at brokerage firm Fahnestock & Co. “As we started to near the end of the earnings period, and some positive economic data surfaced, the market showed that it was not too pooped to pop.”
The blue-chip Dow Jones industrial average closed up 121.09 points, up 1.2%, at 10,522.81, after being up 192 points earlier in the session. The technology-laden Nasdaq composite index ended up 9.29 points, or 0.5%, at 2,027.13, after a nearly 2% advance earlier. The broad Standard & Poor’s 500 index edged up 6.71 points, or 0.6%, to 1,211.23.
Many traders were skeptical of the day’s advance as the stock market wrapped up a month that saw more tech stock declines and little change for blue chips. U.S. companies reported their worst quarterly profits in a decade--down more than 17%--in July. This washed away Wall Street’s hopes for an imminent recovery.
Advancing issues on the Big Board outnumbered decliners 3 to 2, while winners barely nosed out losers 19 to 18 on Nasdaq. Volume was muted throughout the day.
Among the day’s highlights:
* Cisco Systems rose 33 cents to $19.22, boosting Nasdaq. The Internet gear giant, due to issue quarterly results next week, probably will offer a relatively upbeat outlook, said investment bank Salomon Smith Barney. Cisco rival Juniper Networks added 47 cents to $25.69.
* Shares of Lucent Technologies fell 28 cents to $6.70 after S&P; cut the telecom equipment supplier’s credit rating for the third time this year. The credit rating agency said the downgrades may end if Lucent renegotiates its bank credit lines.
* Japan’s Nikkei 225 stock average rebounded from its lowest close in 16 years, gaining 2.4% to 11,860.77. Expectations of higher earnings from Honda Motors and Canon led the market higher.
* Verizon Communications fell $1.87 to $54.15. The No. 1 U.S. local telephone company said second-quarter profit, before unusual items, rose amid strong sales of data services. But it cut its growth outlook for the full year because of the weak economy and soft demand for basic telephone services.
Market Roundup: C6-C7
