Data Showing Modest Inflation Help Lift Stocks
Stocks regained ground Wednesday as the market’s cautious optimism was restored by government data showing only modest inflation, signaling the Federal Reserve doesn’t have to accelerate interest-rate increases.
The Dow Jones industrial average rose 62.59 points, or 0.59%, to 10,673.79, after a 174-point slide Tuesday. Analysts said a reflex rally was to be expected after the previous session, which most thought had been oversold.
The broader gauges also were higher. The Standard & Poor’s 500 index gained 6.64 points, or 0.56%, to 1,190.80. Nasdaq was up 0.93 point, or 0.05%, at 2,031.25.
Advancers outnumbered declining issues by more than 3 to 2 on the New York Stock Exchange.
“People were really looking for a reason to buy today.... Judging by conversations with our clients, people were looking to reengage,” said Brian G. Belski, market strategist at Piper Jaffray. “If we’d had a stronger semblance of inflation, this thing could’ve really come uncoupled today.”
The Labor Department reported a tiny 0.1% rise in its consumer price index for January, as energy costs slid for a second straight month. The data, which suggest consumer inflation remains very much under control, was at odds with Friday’s reading of the producer price index, which showed higher inflation for wholesale goods. Although the discrepancy was puzzling to some, it provided a needed lift for stocks.
“We’ll just call this ‘better than yesterday,’ ” said Arthur Hogan, chief market analyst at Jefferies & Co. in Boston. “Last week we got the surprise in the PPI and we didn’t get the corresponding surprise in the CPI, which means the raw material costs are not being passed on to the end user with the finished goods, so that’s good news on the inflation front. That makes us less worried the Federal Reserve will need to step up its rate tightening.”
Treasury yields fell on the inflation data, with the benchmark 10-year note falling to 4.26%, down from 4.29% on Tuesday. Bond traders were further relieved by the release of minutes from the Fed’s Open Market Committee’s policy meeting, held earlier this month, which said future rate increases were likely to be “measured.”
The dollar, which tumbled Tuesday on rumors that South Korea planned to diversify its currency holdings away from the greenback, recovered somewhat after Seoul’s central bank denied the report. The dollar traded at 104.85 yen, up from 104.09 on Tuesday. The euro fell to $1.323, down from $1.326.
Oil prices moderated after shooting up nearly 6% on Tuesday. Crude oil for April delivery closed at $51.17 a barrel, down 25 cents, in New York trading.
In other market highlights:
* United Technologies gained $1.11 to $99.75. The company said Tuesday that its Pratt & Whitney unit would acquire Boeing’s Rocketdyne rocket-engine unit in the San Fernando Valley, which makes the reusable main rockets used by the space shuttle, for $700 million in cash. Boeing gained 57 cents to $52.72.
* TiVo surged on speculation that Apple Computer might be planning a bid to buy the company that popularized digital-video recording of TV shows. TiVo’s shares closed up 68 cents, or 18%, to $4.38. Apple rose $2.94 to $88.23. Spokesmen for TiVo and Apple declined to comment, saying the companies don’t respond to rumors.
* Activision, the maker of “Spider-Man” video games, rose 18 cents to $21.62. The Santa Monica-based company said it would split its stock 4-for-3 after the shares rose 66% last year.
The split will be paid March 22 to shareholders of record on March 7. Investors will receive one additional common share for each three they own.
* Toll Bros. rose $3.21 to $84.25 as soaring demand for luxury homes boosted profit in the first quarter, prompting the company to raise delivery estimates for 2005. Its earnings blew past the estimates of analysts surveyed by Thomson First Call.
* Lowe’s was up 37 cents at $57.90 after the home-improvement chain reported a nearly 27% rise in fourth-quarter earnings on an almost 18% increase in sales. The results beat analyst expectations by a wide margin, but forecasts disappointed investors.
* Chiquita Brands International was up 5 cents at $22.05 after the banana grower announced plans to acquire Fresh Express, the nation’s top seller of bagged salads, from Performance Food Group for $855 million in cash. Chiquita said Tuesday that its profit more than tripled in the fourth quarter.
