Late Stock Rally Lifts First Session of 2002
Wall Street investors began the new year cautiously Wednesday, putting off buying until the last hour of trading but still giving stocks a respectable advance. Bond yields jumped on concerns the Federal Reserve’s yearlong string of interest rate cuts is ending.
A report that manufacturing activity rose more than expected in December failed to trigger buying in the stock market for much of the day. But it rattled bond investors: Treasury yields had their biggest one-day rise in a month as the manufacturing data made it less likely that the Fed will continue the rate-cutting campaign it began one year ago today.
“Any data that point to the economy turning around lead to concern the Fed is finished cutting rates,” money manager Michael Materasso of Fiduciary Trust Co. International told Bloomberg News.
The Fed’s 11 rate cuts last year have pulled shorter-term Treasury yields to 40-year lows. But longer-term yields, which aren’t directly controlled by the Fed, have been rising since early-November, reflecting growing belief that the economy will recover this year.
On Wednesday the 10-year Treasury note yield jumped to 5.16% from 5.02% Monday. The yield plunged in the wake of the terrorist attacks, but now is above its level when the Fed began cutting short-term rates a year ago.
The two-year T-note yield climbed Wednesday to 3.20% from 3.05% Monday. It still is far below its level of a year ago.
Stock and bond markets were closed Tuesday for New Year’s, and trading Wednesday was relatively subdued, indicating many investors hadn’t yet returned.
Still, the Dow Jones industrial average finished up 51.90 points, or 0.5%, at 10,073.40, after falling as much as 85 points. The Nasdaq composite index rose 28.85 points, or 1.5%, to 1,979.25, and the Standard & Poor’s 500 index advanced 6.59 points, or 0.6%, to 1,154.67.
Winners barely outnumbered losers on the New York Stock Exchange. Advancing issues led decliners by about 7 to 6 on Nasdaq.
The Institute of Supply Management, formerly known as the National Assn. of Purchasing Management, reported that its index of manufacturing activity rose to 48.2 in December from 44.5 in November--its highest level since October 2000. The report indicated that the manufacturing sector still is contracting, but at a slower pace.
“The manufacturing orders were favorable; they did give a bit of a boost to the market,” said Alan Ackerman, executive vice president of Fahnestock & Co. “But the market is wrestling with attempts to find a footing after a turbulent year and amid light trading.”
Wednesday’s early selling was attributable to investors locking in profits before what’s expected to be a new wave of quarterly corporate earnings warnings starting next week, traders said.
“There are probably going to be a few unpleasant surprises,” said Bill Barker, investment strategist for Dain Rauscher.
Among blue-chip stocks, AT&T; rose 56 cents to $18.70 after Merrill Lynch raised its near-term rating on the stock to “buy” from “neutral.” Merck climbed 96 cents to $59.76; General Electric gained 87 cents to $40.95; and Ford advanced 50 cents to $16.22.
But retailers were weak after having suffered one of the worst holiday sales seasons in at least a decade. Kmart fell 72 cents to $4.74 after Prudential Securities reduced its rating on the discounter to “sell” from “hold.”
Other market highlights:
* Energy stocks were generally lower, despite a 6% jump in oil prices. Among oilfield services companies, Halliburton was off 83 cents to $12.27; BJ Services fell $2.30 to $30. 15; and Tidewater lost $1.04 to $32.86. Also, Marathon Oil fell 25 cents to $29.75, but Exxon Mobil added 30 cents to $39.60.
Crude oil rose $1.17 to $21.01 a barrel in New York trading as cold weather in the Northeast led to a rise in heating oil demand. Also, major oil exporters last week pledged hefty production cuts, though analysts have been skeptical that the cuts will significantly boost crude prices.
* Tech stocks got a lift from chip makers, which rose after South Korea’s Hynix Semiconductor, the world’s third-largest memory chip maker, said it was raising prices. Rival Micron Technology rose $2.24 to $33.24.
Chip makers also benefited from an upbeat report by the Semiconductor Industry Assn., which said semiconductor sales rose 1.6% to $10.6 billion in November, the second straight month of growth. Intel advanced $1.55 to $33, Broadcom gained $3.57 to $44.44 and Xilinx jumped $2.50 to $41.55.
* Overseas, Japan’s financial markets were closed for the New Year’s holiday, and will reopen Friday. In Europe, stocks were mixed and investors were cautious following Tuesday’s debut of the euro, Europe’s new single currency. French stocks lost nearly 1%, while shares were flat in Britain and up marginally in Germany.
