Oil Price Drop Buoys Markets
A pullback in oil prices and a surprise drop in wholesale inflation helped fuel a rally on Wall Street on Friday as investors’ concerns about the economy eased.
The Nasdaq composite index surged, with investors buying heavily into an oversold technology sector.
Oil prices slumped, settling at $42.81 a barrel, down $1.80, in New York trading. That reversed almost all of the price jump on Thursday that was triggered by a report showing U.S. crude inventories at a six-month low.
Investors welcomed the government’s report that the producer price index, a measure of wholesale prices, dipped 0.1% in August. That was viewed as a strong sign that the economy had managed to keep inflation at bay despite this summer’s rising oil costs.
Advancing issues outnumbered decliners by 3 to 2 on the New York Stock Exchange and by 7 to 4 on Nasdaq.
Nasdaq gained 24.66 points, or 1.3%, to 1,894.31. The Standard & Poor’s 500 index was up 5.54 points, or 0.5%, at 1,123.92 -- its highest since July 2.
But a profit warning from Alcoa, which slashed its third-quarter forecast by about 40%, weighed on the Dow Jones industrial average. The Dow added 23.97 points, or 0.2%, to 10,313.07.
For the week, the Dow rose 0.5% and the S&P; was up 0.9%, while Nasdaq soared 2.7%, although the tech-focused index remains down 5.4% for the year.
Stock prices have been slowly recovering since mid-August, helped by lower oil prices and flat long-term bond yields. The Nasdaq index is up 8.1% since Aug. 12.
But many analysts worry that investors’ corporate earnings expectations are too high.
“Investors have become overly enthusiastic” about earnings, said Jack Caffrey, an equities strategist at J.P. Morgan Private Bank. “It behooves companies to keep expectations reasonable. We’re still seeing profit growth, it’s just that it’s moderated.”
The news on earnings has been mixed in recent days. Companies including Nokia, Texas Instruments and steel firm Nucor have given upbeat outlooks, while firms including Dean Foods and McKesson have warned of shortfalls.
Among Friday’s market highlights:
* Alcoa fell $2.54 to $30.75 after reducing its forecasts for the third quarter because of labor issues and plant closings. Alcoa expects to earn 30 to 35 cents a share, far less than Wall Street’s average forecast of 52 cents.
* Auto parts maker Visteon cited Ford’s cutbacks in production as a factor in taking a one-time charge of up to $900 million in the third quarter. Visteon tumbled $1 to $8, while Ford slipped 21 cents to $13.96.
Other auto-related stocks losing ground included Magna International, down $2.99 to $70.67, and TRW Automotive, down 68 cents to $18.62.
* In the tech sector, National Semiconductor rose 76 cents to $14.24, Texas Instruments jumped $1.17 to $21.94, Agilent gained $1.55 to $22.71 and SAP was up $1.92 to $39.18.
* Walt Disney added 30 cents to $23.16 after Chief Executive Michael Eisner announced that he would step down as the Burbank company’s longtime leader Sept. 30, 2006.
* Among other Southland issues, clothing designer and retailer Quiksilver surged $3.27 to $25.90 after reporting sharply higher quarterly earnings.
* U.S. Treasury yields fell slightly. The report of a decline in wholesale inflation in August helped spur buying of bonds, but some investors were hesitant after two regional Federal Reserve Bank presidents made comments indicating that the central bank would continue to raise short-term interest rates.
The yield on the benchmark 10-year note fell to 4.19% from 4.2% on Thursday. The yield was at 4.28% a week ago.
