Blue Chips Higher; Tech Stocks Falter
Stocks closed mostly higher Thursday, though key indexes were mixed, as fresh data suggested the economy isn’t sinking into recession.
A surprise interest rate cut in Europe also helped support equities. But the bond market viewed the day’s news as potentially inflationary in the long run, and yields jumped.
On Wall Street the Dow Jones industrials edged up 43.46 points, or 0.4%, to 10,910.44, continuing the sideways trend of the last two weeks, as investors await the Federal Reserve’s meeting Tuesday.
The Nasdaq composite fell 27.77 points, or 1.3%, to 2,128.86. Nasdaq, too, has been stuck in a narrow range for most of this month, after April’s surge.
Still, rising stocks outnumbered those falling by 3 to 2 on the New York Stock Exchange. Winners and losers were nearly evenly matched on Nasdaq.
“There’s still enough uncertainty [about the economy] to prevent the market from running away,” said Charles White, portfolio manager at Avatar Associates. But “we’re in a market that wants to believe that a recovery is coming in the fourth quarter and, until that notion is dispelled, we’re going to grind our way higher.”
Retail stocks surged in the wake of reports Thursday that April sales were stronger than expected at many chains.
Also, the government said the number of U.S. workers filing new claims for state unemployment benefits plunged last week from the highest level in more than five years. Initial jobless claims fell a larger-than-expected 41,000 to 384,000 in the week ended May 5.
The stock market didn’t view the reports as strong enough to deter the Fed from cutting its key short-term interest rate from 4.5% to 4% at Tuesday’s meeting. That is the widespread expectation.
Likewise, the European Central Bank’s rate cut Thursday--its first cut in two years--gave the Fed more room to ease credit without threatening the dollar’s value.
In theory, a widening difference between interest rates in Europe and the United States could cause investment capital to flow from the U.S. to Europe, weakening the dollar. A sinking dollar could boost U.S. inflation.
The European rate cut also could help lift growth in Europe, benefiting the U.S. economy as well.
But the potential for a global economic rebound sooner than later is causing bond investors to question whether long-term interest rates are poised to resurge.
Traders pushed Treasury bond yields higher Thursday, with the 10-year T-note yield rising to 5.29% from 5.17% on Wednesday. Thursday’s yield was the highest since April 30.
The bond market also suffered under the weight of the heavy supply of new corporate bonds sold this week, including WorldCom’s record $11.9-billion offering.
Among Thursday’s highlights:
* Retail shares dominated the winner’s list, with Wal-Mart Stores up $1.83 to $53.42, Kohl’s up $4.38 to $61.66, Best Buy up $2.12 to $54.97 and Hot Topic up $2.63 to $33.10.
* Some industrial names also rose on optimism about the economy. Alcoa gained 53 cents to $41.91, DuPont rose $1.03 to $46.97 and Caterpillar jumped $1.43 to $53.43.
Home builders also gained. Ryland surged $3.11 to a record $56.30, Lennar jumped $1.48 to $44.81 and Pulte gained $1.54 to $46.47.
* Morgan Stanley’s upgrade of a handful of semiconductor companies initially boosted the sector, but by the end of the session the momentum had faded. Applied Materials, for example, eased 3 cents to $51.01 after rising as high as $54.35.
Among other tech names, Oracle Systems slumped 67 cents to $16.39. Salomon Smith Barney cut its profit forecast for the current quarter to 13 cents a share from 15 cents, citing slowing corporate spending on information technology.
Other tech leaders losing ground included Cisco Systems, down 30 cents to $18.83, and Yahoo, down 63 cents to $18.23.
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Market Roundup: C7, C8
