Dow Hits High for the Year Despite Some Bad News
The Dow industrials rolled to a new high for the year as stock investors shrugged off bad news on several fronts Wednesday, feeding the recent positive momentum.
The Dow Jones industrial average expanded its year-to-date gain to 10.1% despite a profit warning from chip maker Texas Instruments, a widening investigation of mortgage giant Freddie Mac, a new round of violence in the Middle East and a report from the Federal Reserve showing that U.S. economic conditions remain mixed.
“You have to respect the market’s momentum,” said Russ Koesterich, domestic equity strategist at State Street Global Markets in Boston.
“I’ve got doubts about the economy and stock valuations, but momentum can take on a life of its own,” Koesterich said.
“You’re seeing significant commitments by large institutional investors,” he said, noting the day’s active trading volume.
The Dow climbed 128.33 points, or 1.4%, to 9,183.22; the broader Standard & Poor’s 500 index rose 12.64 points, or 1.3%, to 997.48; and the technology-heavy Nasdaq composite index rallied 18.35 points, or 1.1%, to 1,646.02.
Winners beat losers by more than 2 to 1 on the New York Stock Exchange and by more than 3 to 2 on Nasdaq.
The S&P; is up 13.4% in 2003 and Nasdaq is up 23.3%, surprising cautious optimists who called for single-digit gains at best after three years of bear market losses.
After rising for three straight months, the S&P; is up 3.5% so far in June, putting the benchmark on pace for a fourth straight winning month for the first time since January 1999. Given Wall Street’s cheery tone, Monday’s sell-off was seen by many as a buying opportunity, leading to two sessions of gains.
The market got a boost Wednesday from oil sector stocks, thanks to a jump in crude prices past $32 a barrel -- highest since the Iraq war. Unocal rose $1.23 to $31.21, Halliburton added $1.02 to $24.87 and Noble gained $1.87 to $37.39.
Nasdaq’s biotech index stayed hot as well, gaining 4.1%. ICOS climbed $4.42 to $45.17, a new 52-week high, and ILEX Oncology added $1.76 to $16.22.
In economic news, the Fed’s beige book said that U.S. business and consumer sentiment has improved since the end of the Iraq war, but also that conditions remain “sluggish.”
In recent weeks, Treasury yields have plunged in anticipation of another interest rate cut aimed at boosting the economy at the Fed’s June 25 meeting.
But on Wednesday, the yield on the benchmark 10-year T-note bounced to 3.21% from 3.19%.
Analysts say retail sales figures for May, due this morning from the Commerce Department, could offer a key clue about the economy’s health. Flat sales are expected, after a 0.1% drop in April.
In Wednesday’s stock trading, Texas Instruments slumped $1.53 to $18.86 after warning late Tuesday of slow sales, and chip equipment maker Cymer slid 74 cents to $31.90 after issuing a warning of its own. Brokerage Morgan Stanley also downgraded the chip sector, but Wall Street pros noted that with investors in a forgiving mood, the SOX semiconductor index lost only 0.6%.
Investors also looked beyond the latest Mideast suicide bombing, which killed 16 people in Jerusalem.
Freddie Mac slumped $1.50 to $50 after the government launched criminal and securities probes of the mortgage firm, which ousted its top executives Monday and restated its earnings for the last three years.
Strategists say the equity market could be susceptible to a short-term pullback in light of its powerful run, and they also note that with the S&P; 500 near the closely watched 1,000 level, it could encounter “resistance” from sellers looking to capitalize on the rally.
In other highlights:
* AT&T; gained $1.20 to $20.50 after saying it expects to trim its debt load this year.
* Home builders rallied after Lennar lifted its 2003 earnings forecast, sending its shares up $5.70 to $75.45. Centex rose $5.90 to $85.81.
* Eli Lilly advanced $2.96 to $63.19 after the drug maker slightly boosted second-quarter profit expectations.
