Inflation Data Lift Stocks
Wall Street managed a small advance for a second straight session Tuesday after the government released benign inflation figures.
Solid earnings from Best Buy and Lehman Bros. Holdings supported the gains, and General Motors led a rally in auto-related stocks on a report that the world’s biggest carmaker told its union an agreement to cut healthcare expenses is needed by July.
“Corporate earnings remain solid with expectations continuing to move upward,” said Larry Adam, who helps oversee $57 billion as chief investment strategist at Deutsche Bank Alex. Brown in Baltimore. It’s a “very attractive market for equities right now.”
The Dow Jones industrial average rose 25.01 points, or 0.2%, to 10,547.57 after rising less than 10 points Monday.
Broader stock indicators also gained ground. The Standard & Poor’s 500 index was up 3.09 points, or 0.3%, at 1,203.91, and the tech-heavy Nasdaq composite index climbed just 0.08 point, or nearly flat, to 2,069.04. Nasdaq was lower most of the session as investors took profits in the recently active technology sector.
Advancing issues outnumbered decliners by more than 5 to 3 on the New York Stock Exchange.
Investors who had waited anxiously for the Labor Department’s inflation report were pleased by the 0.6% drop in the producer price index. Economists had forecast a 0.2% decrease. But May retail sales data, reported by the Commerce Department, fell a disappointing 0.5%, more than the 0.2% analysts expected.
The mixed economic data implies “that the Federal Reserve may continue to raise short-term interest rates at a measured pace, but they may pause periodically,” said Hugh Johnson, chief investment officer at Johnson Illington Advisors. “That’s good news for the economy, for earnings and stock prices.”
Bonds sold off as stocks rose, with the yield on the 10-year Treasury note rising to 4.11% from 4.09% on Monday. Bond yields rise as their prices fall.
Crude oil futures dropped modestly after reaching a seven-week high Monday, as investors awaited pricing and production news from OPEC and from the U.S. inventory report, both coming today. A barrel of light crude settled at $55, down 62 cents, in New York trading.
Although crude oil prices remain unusually high, the producer price index showed that higher gasoline prices were not feeding inflation -- fears of which weighed heavily on the markets earlier in the year.
However, with retail sales declining, investors worried that the high energy costs were instead eating into consumers’ disposable income.
That left the indexes unable to stage a major advance, though stocks managed to add to Monday’s meager gains. But investors had been hoping that this week’s raft of economic data would provide the necessary impetus to lift stocks further. Now, however, investors may be holding off until the end of the quarter before making any large bets on stocks.
“People are coming up with excuses not to do anything; they want to have everyone close their second-quarter books then wait until July to see what the earnings reports are,” said Paul McManus, senior vice president and director of research at Independence Investment.
In other market highlights:
* Best Buy had the biggest rally in the S&P; 500, surging $8.68, or 15%, to a record close of $67.80. The company raised its full-year profit forecast to as much as $3.25 a share from $3.10. Best Buy also reported first-quarter profit of 51 cents a share, more than the 30 cents expected by analysts in a Thomson First Call survey.
Smaller rivals Circuit City Stores and RadioShack also gained. Circuit City increased 60 cents to $17.51 and RadioShack climbed 18 cents to $25.23.
* Lehman increased $3 to $96.05. The firm reported second-quarter earnings of $2.26 a share, exceeding the $2.22 average analyst estimate in a Thomson survey.
* GM added $1.42, or 4.1%, to $35.87 and was the biggest contributor to the Dow average’s gain. The company may take steps on its own to cut its costs without a union agreement, the Detroit News said.
Spokesmen for the United Auto Workers and GM declined comment.
Smaller competitor Ford Motor increased 30 cents to $10.82. Delphi, the largest U.S. maker of auto parts, jumped 45 cents to $5.06. The shares were boosted to “hold” from “sell” by Deutsche Bank analyst Rod Lache. .
* California Pizza Kitchen rose $1.77, or 7%, to $26.98 after KeyBanc Capital Markets upgraded the restaurant chain, saying the stock is attractively valued. KeyBanc analyst Dennis Forst raised the shares to “aggressive buy” from “hold,” noting that the Los Angeles company plans to open 15 outlets in 2005 and more than 20 in 2006, as compared with the three the company opened in 2004.
* Drug maker Mylan Laboratories climbed $1.88, to $19.58, after announcing a $1.25-billion stock buyback plan.
