Stocks End Mixed While Bonds Rally
The stock market ended mixed Thursday after the previous session’s sharp sell-off, as investors wrestled with the question of how soon the Federal Reserve might raise interest rates from generational lows.
A late rally in bonds helped lift blue-chip indexes from their midday lows.
The Dow Jones industrial average added 41.92 points, or 0.4%, to 10,510.29, after sliding 141.55 points on Wednesday.
The Standard & Poor’s 500 index gained 5.63 points, or 0.5%, to 1,134.11. But the technology-heavy Nasdaq composite continued its decline, losing 9.14 points, or 0.4%, to 2,068.23. It was Nasdaq’s fifth loss in seven sessions.
Despite the upturn in blue-chip indexes, declining issues outnumbered advancers by 5 to 3 on the New York Stock Exchange and on Nasdaq. Trading was heavy.
Stocks were slammed Wednesday after the Fed, concluding its first meeting of 2004, kept its benchmark short-term interest rate at 1%, but changed the wording of its official statement.
The central bank said it could “be patient” with interest rates, a shift from its promise of recent months to keep rates low for a “considerable period.”
Some investors interpreted the change as a signal that the Fed might be preparing to tighten credit.
But many analysts said Thursday that they saw no reason to believe the Fed would raise rates soon, with the economy still struggling to create jobs.
“The Fed has shown that they have no desire to make a pre-emptive rate increase,” said Jeff Swensen, senior trader at John Hancock Funds.
“We definitely had a big sell-off [Wednesday] that feels a bit overdone,” said Peter Dunay, chief market strategist at Wall Street Access.
Nonetheless, buyers didn’t appear in force Thursday until later in the day. The Dow was down about 50 points at its low. The Nasdaq index was down about 36 points at its low.
Stocks were helped later in the session by a turnaround in the bond market. The yield on the benchmark 10-year Treasury note, which jumped to 4.19% on Wednesday from 4.08% on Tuesday on the heels of the Fed’s statement, rose as high as 4.24% on Thursday, then pulled back to end the day at 4.17%.
Traders said the bond market was soothed after the minutes of the Fed’s Dec. 9 policy meeting, made public Thursday, gave little indication that a rate increase was imminent.
The minutes showed that most Fed policymakers in December decided to retain the “considerable period” pledge at that meeting because it “accurately conveyed the committee’s policy intentions.”
Treasuries also erased their losses after the government’s sale of $26 billion of new two-year notes, at a yield of 1.93%, drew greater demand from foreign buyers than the prior month.
Though the stock market stabilized Thursday, many analysts say the market faces a key test in coming weeks: If profit taking accelerates, will enough buyers surface to keep the bullish trend on track?
“The market is on a precarious perch right now,” said Bryan Piskorowski, market commentator at Wachovia Securities. “Fundamentals are definitely robust, but there’s always the question of how robust they’ll be down the road. That’s the question people are making their bets on.”
Among Thursday’s highlights:
* Corporate earnings reports bolstered a number of stocks, including Eli Lilly, up $1.48 to $68.40; Bausch & Lomb, up $1.50 to $52.35; and Leggett & Platt, up $3.75 to $25.45.
* American Express helped lift the Dow, rising $1.20 to $50.95. MBNA will offer American Express cards for the first time after a court last year ruled that Visa International and MasterCard International can’t stop banks from issuing competing cards. MBNA added 40 cents to $26.90.
* Boeing gained 76 cents to $42.30. The company lifted its forecasts for 2005 profit and sales to account for a pickup in defense spending.
* Tenet Healthcare slid 90 cents to $12.28, its seventh straight decline. The troubled company this week said it would sell nearly a third of its hospitals.
* In the tech sector, downbeat company forecasts hit Veritas, which sank $4.23 to $32.24, and Foundry Networks, which plunged $8.42 to $23.16.
* Foreign markets were mostly lower. Major European indexes fell between 1% and 1.3%. Brazil’s market sank 6.1%.
Market Roundup, C7-8
