Stocks Reverse Course, End Higher
Stocks erased a sharp morning sell-off to close higher Tuesday as investors focused on the bright spots in a key U.S. manufacturing survey and the dismissal of lawsuits against leading Wall Street firms.
The Dow Jones industrial average, down 114 points early on, closed up 55.51 points, or 0.6%, at 9,040.95, and the broader Standard & Poor’s 500 Index was up 7.82 points, or 0.8%, at 982.32.
The technology-heavy Nasdaq composite index rose 17.33 points, or 1.1%, to 1,640.13.
On the first day of the third quarter, winners led losers by about 3 to 2 on the Big Board and by about 8 to 7 on Nasdaq. Trading was active.
Traders are expecting a choppy week in the market with many investors already on vacation and others marking time before the Fourth of July holiday weekend. U.S. markets will close at 10 a.m. PDT Thursday and will be shuttered Friday.
The market tumbled after the Institute for Supply Management’s U.S. factory gauge fell short of Wall Street’s expectations. But by mid-afternoon, the major market indexes had swung higher as investors reconsidered the ISM report and eyed its rosier details, such as gains in new orders and production and declines in inventories.
“This report has more bright spots than negative ones,” Michael Strauss, chief economist at Commonfund, told Bloomberg News.
Stocks have rallied sharply for more than three months in anticipation of an economic rebound in the year’s second half. But many market watchers fear corporate profits and economic data will not be strong enough to support the large gains since the rally began in mid-March.
So far, the evidence is mixed. At the same time as the ISM report, the government said U.S. construction spending fell 1.7% in May, its biggest drop in a year.
Meanwhile, auto sales came in overall slightly better than expected, and up over last June, but shares of carmakers sagged. Ford Motor, which said its total U.S. sales fell 7.7% in June, fell 17 cents to $10.82.
The dismissal of suits against Merrill Lynch & Co., Goldman Sachs Group Inc., Credit Suisse Group and Morgan Stanley boosted the Amex index of brokerage stocks 1.6%. The court decision has broad implications for legal battles related to the burst of the 1990s stock market bubble and efforts to assign blame for money lost.
In the Treasury bond market, yields declined early in the day as stocks fell, then rebounded as stocks clawed back. The yield on the 10-year T-note closed at 3.55%, up from Monday’s 3.51%.
In commodities trading, gold jumped $5.40 to $351.40 an ounce and oil remained above $30 a barrel, adding 21 cents to $30.40 in New York trading.
Investors are now bracing for the rush of corporate America’s second-quarter results, due in a couple of weeks.
On Tuesday, construction equipment maker Terex fell after warning its second-quarter earnings would fall short of estimates because of weakness in its road-building and North American crane businesses. Its shares fell $1.64 to $17.88.
In other highlights:
* Allstate gained $1.30 to $36.95. Banc of America Securities upgraded the shares to “buy” from “neutral” and raised its price estimate for the next 12 months to $43 from $37.
* PolyMedica plunged $8.40, or 18%, to $37.39. The medical products maker said regulators are examining whether it capitalized some costs rather than expensing them as incurred.
* Biotech firm Millennium Pharmaceuticals fell after Millennium agreed to market recently approved cancer drug Velcade with a unit of Johnson & Johnson. Analysts were disappointed with the deal’s terms. Millennium slid $1.73 to $14.
* Cheesecake Factory slid $1.84 to $34 after Smith Barney downgraded the stock to “underperform,” citing concerns about the Calabasas Hills-based dining chain’s sales and profit.
