Stocks Get Lift From Earnings Optimism
Stocks closed mostly higher Tuesday, though key indexes ended below their levels reached just before the Federal Reserve’s midday announcement on interest rates.
The market was helped by upbeat profit projections from some major firms.
Longer-term bond yields edged lower after the Fed, as expected, kept its benchmark short-term rate stable at a 40-year low of 1.75%, while also signaling that it may raise rates later this year.
On Wall Street, the Dow Jones industrial average ended with a gain of 57.50 points, or 0.5%, to a nine-month high of 10,635.25, after rallying as high as 10,673 shortly before the Fed’s announcement.
The Nasdaq composite gained 3.81 points, or 0.2%, to 1,880.87, after reaching 1,891.
Smaller stocks continued to lead the market: The Standard & Poor’s index of 600 smaller shares rose 0.5% to a record high of 247.41.
Winners topped losers by 17 to 14 on the New York Stock Exchange and by 18 to 17 on Nasdaq. Volume was subdued.
Traders said they weren’t surprised stocks sold off modestly after the Fed’s announcement provided no surprises. They noted that the market has been strong in recent weeks even as expectations have risen that the Fed is moving closer to tightening credit, given the economy’s rebound.
The central bank said it shifted its “bias” on rates to neutral--meaning that it no longer believes that the greatest risk to the economy is of further weakness.
“Almost every market strategist coming into this had said the Fed would go to a more neutral posture and leave rates unchanged, and that’s exactly what happened,” said Bill Barker, analyst at RBC Dain Rauscher.
In the bond market, where longer-term yields have surged in recent weeks amid better-than-expected economic data, investors seemed calmed by the tone of the Fed’s statement. Bond investors “like the Fed’s statement because it gives no hint the central bank needs to raise rates as early as May,” said Cary Leahey, economist at Deutsche Bank Securities.
The yield on the 10-year T-note eased to 5.29% from 5.30% Monday. The yield was as high as 5.33% before the Fed ended its meeting. The yield on two-year T-notes ended at 3.54%, down from 3.59% Monday and down from 3.63% before the Fed’s statement.
“The Fed is not going to go too fast, and probably won’t raise rates until the middle of the summer,” said Vinny Verterano, a bond trader at Nomura Securities International.
In the stock market, many investors are betting that rebounding corporate earnings this year will offset any damage caused by higher interest rates. That view got an assist Tuesday as several major companies said near-term earnings will beat expectations.
Procter & Gamble jumped $2.28 to $89.94 after the consumer-products giant said fiscal third-quarter profit will rise at least 10%, more than forecast, because of higher sales of Tide detergent and the purchase of the Clairol hair-products business.
Brokerage Goldman Sachs gained $1.85 to $91.05 after it reported a smaller-than-expected 32% drop in fiscal first-quarter profit and said business is beginning to pick up.
Timken, a maker of bearings and specialty steel, soared $2.28 to $21.97. The company said it will have an unexpected first-quarter profit and full-year profit higher than estimates, helped by rising sales and cost cuts.
On the downside, the telecom sector continued to weaken. Many investors are giving up hope that the sector can show a profit rebound this year. Lucent Technologies sank 48 cents to $4.30, a new record low. Nortel Networks dropped 12 cents to $4.54, and Nokia was off 68 cents to $21.73.
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Market Roundup, C8-9
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