Markets Get Bit of Encouraging News
Wall Street’s worries about a slowing economy were pushed aside Tuesday by some surprisingly upbeat reports, and the stock market responded with its strongest rally in seven weeks.
An index of consumer confidence rose this month to its highest level in two years, the Conference Board said. A separate government report showed new-home sales in June barely dipped from May’s record pace.
The news was a tonic for investors who have become fearful that the economy and corporate earnings growth have been ebbing. Those concerns have helped pull the Dow Jones industrial average down for five straight weeks.
On Tuesday, however, the Dow surged 123.22 points, or 1.2%, to 10,085.14, its biggest one-day gain since June 7.
Stocks rebounded even as interest rates on Treasury securities rose sharply. The 10-year Treasury note, a benchmark for mortgages, climbed to 4.61%, up from 4.49% on Monday. It was the highest level since June 29.
The three-month Treasury bill yield, which was 1.22% at the beginning of the month, hit 1.46% on Monday, the most it has paid since October 2002.
The jump in yields suggested that bond investors also were betting on a healthy economy, one in which the Federal Reserve would continue to increase its key short-term interest rate.
On Wall Street, investors ignored rising rates and pushed the market broadly higher in active trading. The technology-dominated Nasdaq composite index soared 30.08 points, or 1.6%, to 1,869.10.
The blue-chip Standard & Poor’s 500 index was up 10.76 points, or 1%, to 1,094.83, and an S&P; index of smaller stocks improved 1.8%.
Analysts said the market was overdue for a bounce after slumping for much of July. The Nasdaq index on Monday closed at its lowest level since Oct. 2.
Investors have been pulling away from stocks amid some weaker-than-expected reports on business and consumer activity, and as some major companies have toned down their forecasts for sales and earnings in the second half.
But Tuesday’s data on consumer confidence and new-home sales suggested to some that it was premature to bet on a sustained slowdown. “I think the market is saying that the economy is going to stay strong,” said Richard McCabe, chief market analyst at Merrill Lynch & Co. in New York.
Historically, investors often have stuck with stocks during the initial phase of Fed credit-tightening campaigns. Unless interest rates rise dramatically, the optimistic view is that stocks still are attractive in an expanding economy because they are supported by growing corporate earnings.
Disappointment over some second-quarter profit reports had helped to depress Wall Street in recent weeks, but on Tuesday the market was lifted by encouraging reports from companies including telecommunications giant Verizon Communications and home builder Pulte Homes.
Verizon rose $1.36 to $37.86 after reporting higher profit on surprisingly rapid revenue growth.
Pulte jumped $3.08 to $53.38. Late Monday it said it raised its estimate for full-year earnings to between $7.80 and $8 a share. Analysts had been expecting a profit of about $7.15 a share for the year.
Some market pros said Wall Street’s recent concerns about the economy weren’t justified. Jeffrey Applegate, chief investment officer at Fiduciary Trust Co. International in New York, noted that the market for high-yield corporate “junk” bonds has remained relatively strong in July.
If junk bond investors expected a significantly weaker economy, Applegate explained, they would be dumping the securities, pushing the bonds’ yields sharply higher on concerns about potential defaults.
“I think there has been a big disconnect between the equity market and other markets” this month, he said.
Still, analysts said the market faces a number of obstacles in any attempt to get a sustained rally going. One is continued high oil prices. Near-term crude futures in New York rose 40 cents to $41.84 a barrel on Tuesday.
Edward Yardeni, investment strategist at Prudential Equity Group in New York, on Tuesday cut his forecast for the year-end value of the S&P; 500 index to 1,190 from 1,300. “After rounding up all the usual bearish suspects to blame for the market’s disappointing performance this year,” he said, “I’ve narrowed the problem to the price of oil, which remains stubbornly high.”
Terrorism fears also may keep many investors sidelined at least through summer, some analysts believe.
Among Tuesday’s highlights:
* Rising stocks outnumbered losers by 5 to 3 on the New York Stock Exchange and by more than 2 to 1 on Nasdaq.
* The dollar rallied on the economic news. The euro fell to $1.205 from $1.215 on Monday, and is the lowest it has been since June 17. The dollar’s strength hurt gold. Near-term gold futures in New York fell $3.30 to $387 an ounce, their lowest point since June 16.
* Sentiment in the bond market was hurt by relatively poor demand at the Treasury’s auction of $11 billion in 20-year inflation-indexed bonds. The yield on the bonds was 2.47%, which was above expectations.
* Some heavy-industry shares led the market higher, reflecting investors’ renewed optimism about the economic expansion, analysts said.
Cummins Engine rose $1.95 to $69.37, Eaton jumped $1.48 to $63.81, Ingersoll-Rand gained $1.22 to $67.52, and United Technologies was up $1.50 to $94.50.
* Retailers were buoyed by the consumer confidence report. J.C. Penney shot up $1.82 to $38.95, Sears gained $2.04 to $35.38, and Target was up $1.50 to $44.27. Kmart rocketed $9.16 to $73.24 after a Deutsche Bank analyst said the company’s real estate could be worth $150 a share if it sold off its holdings.
* In the battered tech sector, Intel added 30 cents to $23.27, EBay rose $4.19 to $78.46 and Ask Jeeves jumped $1.80 to $31.02.
