Stocks Rise on Fed Official’s Upbeat Forecast
An upbeat economic forecast from a Federal Reserve governor helped the stock market stabilize Thursday after the previous day’s losses. The same forecast drove bond yields higher.
Many investors were bracing for today’s government report on January employment trends.
The Nasdaq composite index, which plunged 52 points Wednesday amid heavy profit taking in technology stocks, closed up 5.42 points, or 0.3%, at 2,019.56 on Thursday.
The Dow Jones industrial average added 24.81 points, or 0.2%, to 10,495.55, and the Standard & Poor’s 500 inched up 2.07 points, or 0.2%, to 1,128.59.
The Russell 2,000 index of smaller stocks rose 5.51 points, or 1%, to 569.54.
Winners outnumbered losers by about 6 to 5 on the New York Stock Exchange and Nasdaq.
Analysts said Wall Street was cheered by Federal Reserve Gov. Ben Bernanke’s comments on the economy. In a speech, he said the risk of deflation, or falling prices, had “retreated very substantially” and that significant job growth should occur “not too far from now.”
As for when the Fed might begin to tighten credit, Bernanke said the central bank “could afford to be patient and wait to see how the economy develops over the next few months.”
In the bond market, some investors seized on the reference to “the next few months” as another sign that the Fed was trying to prepare investors for higher interest rates by midyear.
“Up until now [Bernanke] has pretty consistently been highlighting the case for the Fed to be on hold for a very long period of time,” Ifty Islam, head of U.S. fixed-income strategy at Deutsche Bank in New York, told Bloomberg News.
Yields on Treasury bonds rose across the board. The 10-year T-note ended at 4.17%, up from 4.11% on Wednesday and the highest in a week.
The stock market reacted badly last week when Fed officials first signaled that they might tighten credit sooner than later. But sellers didn’t swarm on Thursday. Some analysts said profit taking in some parts of the market, particularly the technology sector, may have gotten overdone in the short term.
The Nasdaq index’s loss of 2.5% on Wednesday was its biggest one-day decline since Sept. 24. The index has dropped in six of the last nine sessions, reducing its year-to-date gain to 0.8%.
Today’s January employment report will be a key test for stocks and bonds. Strong job creation last month could trigger another jump in bond yields on concerns about the Fed.
Among Thursday’s market highlights:
* Major tech stocks were mixed. Apple Computer rose 63 cents to $22.42, Varian gained $1.40 to $40.95, Yahoo added $1.15 to $46.10 and Qualcomm was up 47 cents to $56.86. But IBM lost $1.33 to $98.86 and Cisco Systems slipped 26 cents to $23.82. Cisco is at its lowest level since Dec. 26. It rose as high as $29.13 in January.
* Some industrial issues rebounded from recent losses. Chemical firm Georgia Gulf jumped $1.59 to $26.49, International Paper rose 58 cents to $41.30 and Eaton rallied $1.76 to $117.32.
* Many consumer-related blue chips continued to climb. The stocks have come back into favor in recent days. Eli Lilly rose 95 cents to $71.45 and Colgate-Palmolive was up 86 cents to $54.62. Brewer Adolph Coors soared $5.58 to $61.50 after reporting sharply higher fourth-quarter profit.
* Retail stocks were mostly higher on strong January sales reports. Pier One Imports surged $1.33 to $21.48, Best Buy jumped $1.65 to $51.90 and Kohl’s rallied $1.87 to $46.96.
* Insurance stocks attracted buyers. American International Group gained $1.18 to $71.33 and Chubb rose $1.91 to $72.51.
* Corporate junk bond prices continued to slide despite Wall Street’s gains. The junk sector was red hot in 2003 and for much of January, but profit takers have knocked prices down -- and yields up -- in recent days.
The average yield on an index of 100 junk bonds tracked by KDP Investment Advisors ended at 7.25% on Thursday, up from 7.1% on Wednesday. The recent low was 6.55% on Jan. 22.
