Stocks Post 3rd Straight Gain; Long-Term Bond Yields Leap
Stocks rose again Tuesday, with blue chips posting their third straight gain as buyers hunted for bargains in a market that last week hit two-year lows.
But there was bad news from the bond market: Long-term Treasury bond yields jumped after a surprisingly strong report on consumer confidence signaled that the economic slowdown might not be as dire as some feared.
A turnaround in yields would cast doubt on stocks’ ability to keep rallying, analysts warned. But Tuesday, at least, buyers seemed unfazed.
The Dow Jones industrial average scored its third straight triple-digit gain, rising 260.01 points, or 2.7%, to 9,947.54.
The Dow has risen 5.9% since hitting a two-year low Thursday.
The technology-dominated Nasdaq composite advanced 2.8%, with a 53.77-point jump to 1,972.26. It is up 7.8% over the last week.
Analysts said the buying this week in part reflects “window dressing” by Wall Street money managers: They’re buying stocks they believe clients would like to see on their first-quarter statements--especially recently strong shares. The quarter ends Friday.
But the rally’s breadth Tuesday impressed some analysts. Nearly two stocks rose for every one that fell on the New York Stock Exchange, and winners outpaced losers by more than 4 to 3 on Nasdaq. Trading was heavy.
Wall Street’s rally followed another day of strong gains in European stocks, which also had been hammered sharply lower in recent weeks. The German market surged 3.7% Tuesday while the British market gained 2.7%.
Still, investors have reason to be wary about the market’s staying power, some analysts said.
“I am not sure what it is, but I don’t have a real good feeling about this rally,” said Ned Collins, a trader at Daiwa Securities America. “I just feel like there are a lot of things in the economy that have to be worked through. I am worried that we are going to go higher only to give it up again.”
Others simply expressed confusion after the Conference Board reported that its consumer confidence index surged in March.
“Where is all this confidence coming from?” asked Jim Claire, director of fixed-income trading at First Union National Bank. “If consumers were so confident, why would the stock market be doing what it has been doing in the past month? It doesn’t jibe. There’s a disconnect here.”
And even if consumer confidence is improving, “the question is still: When will [corporate] earnings news get more positive?” said Robert Harrington, head of listed trading at UBS PaineWebber.
Indeed, more profit warnings were issued Monday and Tuesday by a diverse group of companies, including Camarillo-based chip maker Vitesse Semiconductor, which fell $4.88 to $29.06; greeting-card supplier American Greetings, which slid $1.32 to $13.02; and household-products maker U.S. Industries, which sank $1.41 to $5.97.
The Federal Reserve lowered interest rates for the third time this year at its meeting last week and indicated that another cut might be possible before its May meeting if data showed the economy was weakening at a faster pace.
Now, “the consumer confidence numbers probably make the Fed a little less likely to act” before the May meeting, Harrington said.
Michael Strauss, managing director and senior economist at the money-management firm Commonfund, said the consumer confidence report “leaves more hope that the profit picture might turn in a more favorable direction. But I don’t consider it a major economic indicator, and I don’t think the Fed does either.”
But the bond market took the report seriously: Investors dumped bonds, sending the yield on the 10-year Treasury note to 4.99% from 4.87% on Monday. That yield--a benchmark for mortgage rates--now is the highest since Feb. 26.
The two-year T-note yield surged to 4.43% from 4.31%.
“The whole [bond] market is just stunned and we’re hearing a lot of people are taking some serious pain” after betting on a lower confidence number, said James Rice, a strategist at Stone & Youngberg in San Francisco.
But stock investors, normally spooked by rising yields, paid little attention. Indeed, Wall Street’s rally gained steam as the day wore on.
Many blue-chip issues seemed to draw strength from the consumer confidence report and its indication of the economy’s resiliency.
In the Dow, General Electric rose $1.68 to $41.91, Exxon Mobil gained $2.39 to $80.64, SBC Communications surged $2.65 to $43.90 and Merck rose $2.13 to $73.61.
Among the day’s highlights:
* Retailers were strong, led by Sears, up $1.30 to $36.01, and Home Depot, up $2.11 to $43.46.
* In the tech sector, Intel gained $1.06 to $29.38, Microsoft rose $2.19 to $58.25, Qualcomm jumped $3.25 to $59.88 and Cisco Systems inched up 25 cents to $18.13.
But Lexmark fell $2.38 to $43.37, EarthLink slid 63 cents to $11.44 and Motorola eased 33 cents to $15.96.
* Bank stocks gained, led by Citigroup, up $2.25 to $46.45, and Wells Fargo, up $2.39 to $48.59.
* California’s utilities pulled back after surging Monday on news of a state proposal to raise electricity rates. PG&E; fell 55 cents to $13.20 and Edison International lost 39 cents to $14.16. But most other utility shares rose.
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Market Roundup: C9-10
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Snap-Back
Long-term Treasury bond yields surged Tuesday after a reported jump in consumer confidence suggested the economy is stronger than many believed.
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10-year Treasury note yield, weekly closes and latest
Tuesday: 4.99%
Sources: Times research, Bloomberg News
