Stocks Gain on GDP Report, Falling Oil
Stocks extended their gains into a second day Wednesday as investors digested a better-than-expected revision of second-quarter economic growth, and as oil prices pulled back from the $50 mark.
The Dow Jones industrial average finished up 58.84 points, or 0.6%, at 10,136.24, adding to an 88-point gain Tuesday.
The Nasdaq composite surged 24.07 points, or 1.3%, to 1,893.94, as technology stocks gained partly on enthusiasm over a takeover deal for Internet travel site Orbitz.
The government’s report that gross domestic product grew at a 3.3% rate from April to June was viewed as fairly good news, with a few caveats. While the GDP figure was revised upward from a previous estimate of 2.8%, it still marked the slowest period of growth since early in 2003.
Consumer spending grew at an annual rate of 1.6% in the quarter, the lowest level in three years. Economists fear that high oil prices, which topped $50 a barrel Tuesday, could further hamper spending.
“The economy seems to be on a decent growth path, but it’s being held back by high energy prices, and that’s likely to keep the stock market in this trading range that we’ve been in over the past eight or nine months now,” said Ken Tower, market strategist for Charles Schwab’s CyberTrader.
Oil prices declined Wednesday after the government said U.S. inventories rose last week for the first time in nine weeks, and after a Nigerian militia leader agreed to a tentative deal with the country’s president to end fighting over Nigeria’s southern oil fields.
Near-term crude futures in New York dipped 39 cents to $49.51 a barrel.
But there was bad news from the natural-gas market, where prices had their biggest two-day rally in 19 months on mounting concern that storm-related production cuts in the Gulf of Mexico will linger.
With one day left in the third quarter, equity investors were taking a generally optimistic view of stocks’ prospects. Advancing issues outnumbered decliners by about 5 to 4 on the New York Stock Exchange, and by 2 to 1 on Nasdaq, in active trading.
The Treasury bond market, which has rallied sharply this quarter, was hit by profit taking after the GDP report. Stronger growth could spur the Federal Reserve to raise short-term interest rates at a faster pace.
The yield on the 10-year Treasury note jumped to 4.09% from 4% on Tuesday.
“Yields are just way too low given the state of the economy,” said Jeff Given, who manages $10 billion of bonds at John Hancock Funds in Boston.
In other market highlights:
* Orbitz surged $6.40 to $27.17 on news that travel-services giant Cendant agreed to buy the firm for $1.25 billion. Cendant dipped 9 cents to $21.93.
The deal lifted other Internet-related stocks. Priceline.com rallied $2.15 to $22.13, Amazon.com added $1.41 to $40.84 and Google jumped $4.22 to $131.08, a new high.
Among other tech issues, Intel added 39 cents to $20.07, KLA Tencor gained 93 cents to $40.42 and Autodesk rose $1.40 to $49.38.
* Industrial stocks gained for a second day as the GDP report showed spending on equipment and software rose at an annualized pace of 14.2% in the second quarter, beating the previous 13.6% estimate and up from 8% in the first quarter.
Machinery giant Caterpillar, which rose $2.48 on Tuesday on a strong sales forecast, jumped $3.60 to $80.50. Ingersoll-Rand gained $1.95 to $67.08 and Briggs & Stratton rose $1.37 to $81.96.
* Boeing dropped $1.31 to $51.01 after Bank of America downgraded the stock to “neutral” from “buy,” citing potential weakness in the international aircraft market.
* In the new-issues market, Los Angeles-based cellphone games maker Jamdat Mobile soared $6.51 to $22.51 on its first trading day, and 51job, a China-based job recruiter, jumped $7.15 to $21.15 in its debut.
But PeopleSupport, an L.A.-based outsourcing company, cut the expected price range of its planned stock offering to $7 to $9 from $10 to $12.
* In the municipal bond market, California completed its sale of $6 billion in short-term notes, paying a tax-exempt yield of 1.7% on the bulk of the securities.