Blue Chips, Bonds Rise, but Nasdaq Ends Lower
Wall Street began its fiscal third quarter on an ambivalent note Monday as technology stocks stumbled, but blue-chip shares rallied on some better-than-expected economic news.
In the technology sector, prices fell as investors cashed in holdings to take advantage of last week’s strong performance, when the tech-rich Nasdaq composite index rose more than 6%. Analysts said the selling reflected investors’ worries about the future.
“This is a beginning-of-the-quarter kind of push-up,” said Brian Belski, market strategist at U.S. Bancorp Piper Jaffray. “But there’s still a huge cloud ahead, especially regarding second-quarter earnings that are going to start coming out over the next few weeks.”
U.S. Treasury bonds, meanwhile, posted their biggest gains in more than a month after a manufacturing report encouraged investors that inflation will slow even if the U.S. economy rebounds in the months ahead.
The Dow Jones industrial average closed up 91.32 points, or 0.9%, at 10,593.72 after investors shrugged off an earnings warning from Dow component 3M.
But broader indicators were mixed. The Nasdaq composite fell 11.82, or 0.6%, to 2,148.72, ending a five-session winning streak. The Standard & Poor’s 500 index gained 12.29 points, or 1%, to 1,236.71.
Winners and losers were almost even on the New York stock exchange, while declining issues outnumbered advancers by 11 to 8 on Nasdaq.
There were signs of strength in big-name stocks. Drug maker Johnson & Johnson gained $1.23 to $51.19, and chip maker Intel rose 81 cents to $30.06. Both are Dow members.
Even 3M, which said second-quarter earnings will fall below expectations because of the sluggish economy, gained $3.16 to $117.26, rebounding after a loss earlier in the session.
Still, investors weren’t spending wildly. Analysts said Wall Street is still concerned about earnings ahead, particularly after last month’s incessant string of corporate warnings.
“This is a market that has a penchant for selling into short-term rallies, like what we’re seeing with technology right now,” Belski said. “That just tells you that longer term people are still indecisive and not convinced that everything is OK.”
Tech shares, which are viewed as a riskier bet in the short term, suffered from those doubts. Among the sector’s more notable decliners: PMC-Sierra, off 89 cents at $30.18, and Microsoft, down $2.40 at $70.60.
The apparent demise of two high-profile mergers also captured Wall Street’s attention.
Honeywell International dropped 79 cents to $34.11, ahead of European regulators’ vote today on a proposed merger with General Electric, a deal that is widely expected to be rejected. GE rose $1.20 to $50.20.
UAL’s United Airlines and US Airways also confirmed that they are in discussions to abandon their planned merger. UAL fell 45 cents to $34.70, and US Airways tumbled $3.41 to $20.89.
Investors appeared pleased by data that suggested that the nation’s economic picture, while still sluggish, isn’t worsening.
The Commerce Department reported Monday that consumer spending rose 0.5% in May, slightly faster than many analysts were forecasting. And data from the National Assn. of Purchasing Management showed improvement in its June index; activity in the manufacturing sector was continuing to decline, though not as quickly.
“The sense is that the economy is not getting worse and that there’s the chance that it could be beginning to get better,” said Bill Barker, investment strategy consultant at Dain Rauscher.
Bond investors were heartened by the news that manufacturing costs fell in June to their lowest level since February 1999. The yield on the benchmark 10-year Treasury, which moves in the opposite direction of the price, fell to 5.32% from Friday’s close of 5.41%. The yield on the two-year note fell to 4.17% from 4.24% on Friday.
Wall Street also had to cope with revisions to the closing prices of 65 stocks on the Nasdaq Stock Market after some technical problems Friday. Those troubles shut down two of the Nasdaq’s key trading systems for much of the afternoon, despite efforts to restart them and an extension of the regular trading session.
Market Roundup, C9-10
