Lowe’s Report Boosts Retail Sector, Markets
Stocks inched higher Monday after an upbeat outlook from No. 2 home-improvement retailer Lowe’s boosted hopes consumer spending will underpin the slowing economy. But trading was subdued as investors stayed on the sidelines one day before an expected interest rate cut by the Federal Reserve.
The Fed is expected to chop interest rates for a seventh time this year in an effort to jump-start the economy, but money managers said they are more interested in whether the central bank thinks the economy is picking up steam.
“Everyone’s waiting for the Fed to see what it says,” said Mark Coffelt, who helps manage Texas Capital’s Value & Growth portfolio. “The key is their attitude. Hopefully they’ll say ‘The economy is recovering, but if it’s not, we’ll lower interest rates more.’ ”
The Dow Jones industrial average rose 79.29 points, or 0.8%, to end at 10,320.07, while the broader Standard & Poor’s 500 index added 9.44 points, or 0.8%, to finish at 1,171.41. The Nasdaq composite index gained 14.34 points, or 0.8%, to 1,881.35.
Winners beat losers by a 5-4 margin on the New York Stock Exchange and by 15 to 14 on Nasdaq. Trading volume was well below normal.
Helping push stocks higher was the Conference Board’s report that its index of leading economic indicators scored a fourth consecutive month of gains in July, hinting the economy could show signs of recovery in the months ahead.
But investors’ focus was squarely on the Fed’s next move. A poll of 25 primary dealers of U.S. government securities last Thursday showed they unanimously expect the Federal Open Market Committee to cut the key federal funds rate from 3.75% to 3.50%.
Fears that the Fed may signal that the expected rate cut could be the last of the current rate-cutting cycle spooked bond investors. Treasury securities suffered their biggest losses in two weeks. The yield on the benchmark 10-year Treasury note--which moves opposite of its price--rose to 4.90% from Friday’s close of 4.84%.
Lowe’s bright outlook, meanwhile, helped boost retailing stocks on optimism consumer spending may remain strong.
“Consumer spending is the linchpin right now and comments from Lowe’s this morning suggest consumers are OK,” said Crit Thomas, head of growth equities at National City Investment Management Co. “If consumers can tread water through the end of the year, we’ll feel a lot more comfortable” about the stock market.
Lowe’s climbed $2.80 to $37.84 after reporting that earnings rose 18%, as home building and remodeling markets remained healthy despite the slowing economy. The company also said income-tax rebate checks helped fuel some of the sales increase.
Among other retail building stocks to gain, No. 1 home-improvement retailer Home Depot was up 57 cents at $49.80.
With few bright spots in the bleak corporate profit picture in recent weeks, traders said the stock market would not gain much upward momentum.
“I don’t expect to see anything but a technical rally this week because these markets are still not reacting to anything except a lack of earnings and a lack of economic growth,” said James Volk, co-director of institutional trading at D.A. Davidson & Co. “Until we get that, I don’t see any reason for these markets to get any better.”
Among Monday’s market highlights:
* Toys R Us gained $1.62 to $24.02 after the No. 1 U.S. toy store chain said it expects to return to profitability by the fourth quarter and is “comfortable” with current consensus estimates for this year. The company reported a loss for the quarter, hurt by the economy and spending to remodel stores.
* Car makers were battered after Goldman Sachs Group lowered its profit forecasts for Ford Motor and General Motors, saying eroding market share and higher costs were cutting into profits. Ford fell $1.30 to $20.40 and GM lost $3.47 to $56.
* The dollar had its biggest gain in six weeks against the euro, rising from a nine-month low amid speculation that the greenback’s 9% decline since July wasn’t justified as prospects for U.S. economic growth improve. The dollar strengthened to 91.3 cents per euro from 91.8 cents Friday. The dollar also rose against the yen.
* Retail bakery chain Krispy Kreme Doughnuts jumped $3.28 to $34, after the investment bank Deutsche Banc Alex. Brown forecast stronger-than-anticipated profits for the doughnut chain as it keeps adding stores.
* Internet equipment makers Enterasys Networks and Extreme Networks were rattled by a downgrade from Morgan Stanley. Enterasys plunged nearly 30%, down $3.86 to $9.19, while Extreme Networks lost $5.95 to $16.50.
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Market Roundup, C10, C11
