Stocks See Gains as Oil Prices Hit Six-Week Low
U.S. stocks rose for a third day after oil prices closed at a six-week low, boosting expectations that easing fuel costs will spur economic and corporate-profit growth.
“Oil stabilizing is very positive for the stock market,” said Mark Bronzo, who manages $1.3 billion at Gartmore Separate Accounts. “At these levels, it has not really deterred people from their lifestyles.”
Hewlett-Packard led an advance in technology stocks, after Chief Executive Carly Fiorina said the company would increase sales faster than the overall market.
The Dow Jones industrial average climbed 41.44 points, or 0.4%, to 10,432.52. The Standard & Poor’s 500 index added 1.76, or 0.2%, to 1,142.18. The Nasdaq composite index gained 2.91, or 0.1%, to 2,023.53.
Oil prices fell for a fourth time in five sessions in anticipation that an Energy Department report today would show rising U.S. inventories. Crude oil for July delivery slid $1.38, or 3.6%, to $37.28 a barrel on the New York Mercantile Exchange, the lowest settlement price since April 26.
Yields on shorter-term U.S. Treasury bonds rose after Federal Reserve Chairman Alan Greenspan sounded a tougher note on curbing inflation than many investors had anticipated.
Demand for the two-year note, which is more sensitive to changes in monetary policy than longer-term debt, lessened after Greenspan said the Fed was prepared to abandon a “measured” series of rate hikes in favor of larger increases if higher oil prices accelerate inflation.
The yield on the two-year note rose to 2.69% from 2.65% on Monday. The yield on the benchmark 10-year note was unchanged at 4.76%.
Many stock traders were reassured by Greenspan’s uncharacteristically straightforward comments and noted that rate increases in response to a strong economy fit previous patterns of bull markets.
“I think because this statement was so crystal clear and unambiguous, we aren’t seeing the major selling that we saw in the past,” said Hugh Johnson, chief investment officer at First Albany Corp. “He really hit this on the head, and there’s no need to parse or interpret this. That makes it a lot easier for the markets to digest and account for.”
Randy Bateman, who oversees $10 billion as chief investment officer at Huntington Capital Corp., was also upbeat.
“The economy is strengthening; there is going to be more good economic news, more good news about earnings,” Bateman said. “The market could have some ways to go on the upside.”
Among Tuesday’s market highlights:
* Airlines advanced as oil prices declined. Delta Airlines rose 47 cents, or 8.1%, to $6.29 for the biggest gain in the S&P; 500. Northwest Airlines added 35 cents to $10.71. AMR, parent of American Airlines, climbed 42 cents to $12.49.
* Hewlett-Packard gained 34 cents to $22 after Fiorina reiterated a forecast for sales growth going forward at a rate in the “high single digits.”
* Home builders saw shares decline on concerns that higher interest rates would cool off the housing market. KB Home, the fifth-largest U.S. builder, slid $2.68, or 3.9%, to $65.60, the steepest drop in the S&P; 500. The S&P; supercomposite home building index declined 2.6%, with 13 of its 14 members falling.
D.R. Horton, the second-biggest U.S. home builder, dropped 99 cents to $29.28. Pulte Homes fell 78 cents to $53.91, while Dominion Homes Inc. plunged $4.50, or 15%, to $24.83.
“People who didn’t buy houses have waited a little too long,” said Mark Roach, who helps manage $3.5 billion at Vaughan, Nelson, Scarborough & McCullough in Houston. “Rates are going up and housing starts will slow a little bit.”
* Tribune, which owns the Los Angeles Times and other newspapers, dropped $1.76 to $46.92, one day after saying it would cut more than 200 jobs at its newspapers because of lower-than-expected advertising revenue. Tribune also cut its revenue forecast for the year.
* Alcoa rose 28 cents to $31.60 after Bear Stearns analyst Anthony Rizzuto said it would benefit from increased demand and elevated prices.
* Guidant rose $2.43 to $56.61. The medical device maker could see double-digit growth in earnings per share beginning in 2005, partly because of its Cardiac Rhythm Management franchise, Deutsche Bank analyst Tao Levy wrote in a note. Levy raised his rating to “buy” from “hold.”
Declining issues outnumbered advancers by about 5 to 4 in light trading on the New York Stock Exchange.
Market Roundup, C7
