Stocks Rally as Oil Prices Spike
Stocks got a lift Friday, cinching the second straight winning week for blue-chip indexes, as oil prices ended lower after approaching $50 a barrel earlier in the day.
Strategists said Wall Street’s recent rally -- in the face of mostly higher oil prices -- suggested that investors were no longer taking their cues from the cost of crude.
“The linkage between stock market activity and the price of oil is not strong anymore,” said Tom Hanson, portfolio manager at Pacific Global Investment Management Co. in Glendale.
Hanson said the “shock factor” from the initial run-up that carried oil above $40 a barrel, and kept it there, had worn off. “The anticipation is that the oil bubble will burst sooner than later,” he said.
In light trading Friday, the Dow Jones industrial average climbed 69.32 points, or 0.7%, to 10,110.14. The broader Standard & Poor’s 500 index rose 7.12 points, or 0.7%, to 1,098.35. The technology-heavy Nasdaq composite index rose 18.13 points, or 1%, to 1,838.02.
Breadth was strong, with winners swamping losers by 3 to 1 on the New York Stock Exchange and by more than 2 to 1 on Nasdaq.
For the week, the Dow rallied 2.9%, the S&P; 500 gained 3.2% and Nasdaq surged 4.6%.
Analysts said Friday’s upswing was intensified by hedge funds and other active traders with “short” positions who were covering their bets.
Short sellers bet against the market, selling borrowed shares and hoping to buy them back later at a cheaper price, return them to their lenders and pocket the difference. In a short-covering rally, they give the market an extra boost by scrambling to buy shares quickly to limit their losses when the trend is running against them.
Investors in general were taking a quick-trading approach as they grappled to find portfolio gains even as the major stock indexes languished in the red year-to-date, analysts said.
“The market has been moving in bursts as investors jump on any trend,” said Jack Caffrey, strategist at the J.P. Morgan Chase private bank in New York. “People are afraid the market is starting to leave them behind and they’re jumping aboard.”
Oil ended at $47.86 a barrel, down from $48.70 on Thursday, amid hopes for a resolution to the 2-week-old standoff at the Imam Ali Mosque in southern Iraq.
Even so, analysts were skeptical about the durability of the U.S. stock rally, noting that Wall Street was nearing the historically weak September-October period amid terrorism fears surrounding the GOP convention this month and the Nov. 2 presidential election.
And economic “headwinds” remained a major concern, said Russ Koesterich, equity strategist at State Street Global Markets in Boston.
“The decelerating economy is hurting corporate earnings growth, and we’re in a rising interest-rate environment,” Koesterich said. When interest rates climb, investors traditionally are reluctant to pay premium valuations for stocks.
In a sign that fear was plentiful on Wall Street, gold rallied to its loftiest level since April as investors diversified their portfolios with the precious metal. Gold rose to $413.20 an ounce in Friday’s trading, from $407.10.
In the Treasury market, yields rose modestly.
Among Friday’s highlights:
* Oil service stocks rallied strongly as Lehman Bros. raised its ratings in the sector. Tidewater climbed $1.04 to $28.95, Oceaneering International gained $1.18 to $31.78 and Cooper Cameron rose $1.22 to $49.23.
* Google added to Thursday’s impressive debut, climbing $7.98 to $108.31 on volume of 11.4 million shares.
* Software maker Autodesk jumped $4.70 to $42.06 after lifting its 2004 profit outlook.
* Nordstrom sank $3.74 to $36.82 after the retailer fell short of second-quarter earnings expectations.
