Stocks Get a Boost as Rates Stay Put
The stock market liked what it heard from the Fed on Tuesday, but investors in long-term bonds were wary.
After meandering for much of the day, share prices surged late in the session after the Federal Reserve’s policymaking committee decided to leave its key short-term interest rate unchanged at a 45-year low, and said rates could stay down for “a considerable period.”
“The Fed reiterated they intend to keep rates low as long as it takes, which is good news for stocks,” said Jeff Swensen, a trader at John Hancock Advisers.
Investors are looking for more signs that the economy can gain strength after bullish expectations spurred a run-up in the market that began in March.
The Dow Jones industrial average rose 92.71 points, or 1%, to 9,310.06, its first close above 9,300 since June 17. The broader Standard & Poor’s 500 index added 9.76 points, or 1%, to 990.35, and the technology-heavy Nasdaq composite gained 25.5 points, or 1.5%, to 1,687.01.
The Dow and the S&P; 500 marked their fifth straight gains.
Winners beat losers by 7 to 3 on the New York Stock Exchange and by 2 to 1 on Nasdaq. Trading volume was light, however, with many traders away on summer vacation.
The Fed’s Open Market Committee voted unanimously to leave the federal funds rate target at 1%, its lowest level since 1958. The federal funds rate is what banks charge one another for overnight loans.
The Fed’s comments about holding rates down pushed short-term Treasury yields slightly lower. But long-term yields rose as some investors bet such stimulus would reinforce the recent improvement in the economy and lead to stronger growth, and potentially more demand for money.
The yield on the 10-year Treasury note climbed to 4.43% from Monday’s close of 4.35%.
The dollar, meanwhile, gained against the euro but slipped against the yen.
Retailers, boosted by hopes for an expanding economy, had the biggest gain of the 24 industry groups in the S&P; 500. Home Depot, a Dow stock, rose 44 cents to $33.13. Rival Lowe’s added $1.53 to $48.35.
Computer-related shares also gained amid optimism that a growing economy would lift sales. Hewlett-Packard added 99 cents to $20.95.
In earnings news, Marvel Enterprises rallied $2.85, or 15%, to $21.50 after it said second-quarter profit soared to more than seven times the year-earlier level, boosted by the licensing of such popular comic book characters as the Incredible Hulk and Spider-Man.
In other highlights:
* Financial shares were big contributors to the S&P; 500. Capital One rose $2.40 to $50.49 after the credit card issuer said net credit losses fell last month. Providian Financial, a San Francisco-based credit card issuer, gained 40 cents to $9.73. Citigroup, the world’s biggest card issuer, rose 64 cents to $45.19.
* Drug shares were lower. Johnson & Johnson fell 42 cents to $51.26 after it said the U.S. attorney in New Jersey was investigating marketing practices at the company’s Centocor unit, which makes top-selling rheumatoid arthritis drug Remicade.
Schering-Plough slipped 15 cents to $16.10. The company, whose sales tumbled with the loss of exclusive marketing rights for the allergy drug Claritin, said in a regulatory filing that its cash from operations might not be sufficient to fund working capital, capital expenditures and dividends in 2003 and “possibly beyond.”
And Merck fell 51 cents to $54.53 after it said its pharmacy benefit arm, Medco, may be forced to guarantee sales of a certain amount of Merck drugs even after the planned spinoff of the unit.
* Electricity wholesaler Reliant Resources tumbled $1.10, or 22%, to $3.88 and topped the NYSE’s most-active list. The company swung to a second-quarter loss, hurt by higher interest and energy costs.
* Deere climbed $2.53 to $53.51. The world’s largest maker of farm equipment said fiscal third-quarter earnings rose 68% and beat Wall Street’s forecasts, helped by higher sales and lower costs.
* McDermott International, a builder of offshore oil-drilling platforms, plunged $1.26, or 23%, to $4.19 for the biggest drop in the S&P; 500. The company withdrew its earnings guidance for 2003 and didn’t issue a new forecast. It cited a project in Argentina that was delayed by three months after weather damage.
Market Roundup, C6-7
