Wall St. Ekes Out Small Gain as Oil Stocks Rally
The stock market reversed early losses and managed a small gain Wednesday, with oil stocks rallying in reaction to President Bush’s tough stance on Iraq in Tuesday night’s State of the Union address.
The Federal Reserve Board’s decision Wednesday not to adjust interest rates also encouraged some investors that the economy might be on the mend. That helped spark gains in the tech sector, analysts said.
The Dow Jones industrial average gained 21.87 points, or 0.3%, to 8,110.71, after having been down more than 143 points in earlier trading. But that gain and Tuesday’s 99-point advance recouped only a fraction of the 853 points the blue-chip index lost from Jan. 14 through Monday.
The Nasdaq composite index, led by computer chip shares, added 15.88 points, or 1.2%, to 1,358.06. A Merrill Lynch analyst’s upgrade of chip equipment maker Novellus Systems provided some of the fuel. Novellus shares jumped $2.05, or 6.9%, to $31.58, while the SOX index of 17 chip stocks gained 3.9%.
The Standard & Poor’s 500-stock index rose 5.82 points, or 0.7%, to 864.36, marking its first back-to-back winning sessions this year. Energy and health-care stocks accounted for half the advance, with all 23 energy stocks in the S&P; 500 posting gains Wednesday.
Oil stocks reacted to the prospect of additional crude price hikes in the likely event of war with Iraq. Dow component Exxon Mobil shares rose $1.19 to $33.85 as oil gained 96 cents to $33.63 a barrel in New York trading.
As for health care, analysts said the rebound was partly because the sector is considered defensive and partly because Bush again promised Tuesday to push for reforms that would reduce litigation costs and boost demand for drugs by adding a prescription benefit to Medicare.
Merck shares were up 99 cents to $55.39, and Pfizer gained 55 cents to $30.55.
Some market watchers weren’t convinced that Wednesday’s rally represented a lasting trend.
Anthony F. Dwyer, chief market strategist for Kirlin Securities, dismissed the gains as “an oversold bounce.” That’s “market speak” for a natural rebound after several days of heavy selling.
Arthur Hogan, chief market analyst for Jefferies & Co., added that little of what Bush said about health care was new. He said he thought investors were disappointed that the president didn’t devote more of the speech to the economy and domestic issues instead of the Iraq threat.
“At best it was 50-50,” Hogan said.
If the United States invades Iraq and achieves quick success, it could give the market a significant boost. However, in that scenario, some of Wednesday’s winners could give back their gains, Hogan said. A victory over Iraq would slash global oil prices, for example, which would hurt oil production and oil service stocks, he said.
The Fed, in a regular policymaking meeting, left the short-term interest rate at 1.25%. Fed governors said that with rates at post-World War II lows, the economy should recover once uncertainty surrounding war dissipates.
Yields on Treasury securities rose after the stand-pat decision was announced. The 10-year note closed at 4.02%, up from 3.97% on Tuesday.
Kraft Foods, the maker of Oscar Mayer and Velveeta brands, dropped $4.91 to $31.20 after the company warned that higher pension and retiree benefit costs, plus problems in Latin America, would pull 2003 profit below expectations.
That news weighed on Altria Group, which just changed its name from Philip Morris and is a majority owner of Kraft.
Altria shares sank $1.35 to $37.03. Adding to Kraft’s woes, Altria said increased promotional spending on cigarettes had cut its profit 18%.
Winners led losers by 5 to 4 on the New York Stock Exchange and were about even on Nasdaq. Trading was active.
The Russell 2000 index, which tracks smaller company stocks, rose 1.67 points, or 0.5%, to 374.84.
In European trading, France’s CAC-40 rose 1.4%, Germany’s DAX index gained 1.3% and Britain’s FTSE 100 fell 0.2%. Japan’s Nikkei stock average dropped 2.3%.
Market Roundup, C7-8
