Stocks Manage to Edge Higher Again
Wall Street scratched out its third straight minuscule gain Wednesday as investors fretted over rising oil prices and disappointing inventory data from the Energy Department. Analysts attributed the gain to a calming assessment of the economy by the Federal Reserve.
The surprise decline in domestic crude supplies overshadowed a 0.1% drop in the government’s consumer price index. It was the index’s first decline in 10 months, which encouraged investors, but analysts said that energy costs were headed higher again -- which might contribute to inflation in the months ahead -- and that they were a drag on stocks.
“We had positive economic data across the board,” said Arthur Hogan, chief market analyst at Jefferies & Co. “The headwinds are higher energy prices.”
The Dow Jones industrial average rose 18.8 points, or 0.2%, to 10,566.37 after modest gains Monday and Tuesday.
Broader stock indicators also rebounded. The Standard & Poor’s 500 index rose 2.67 points, or 0.2%, to 1,206.58. The Nasdaq composite index rose 5.88 points, or 0.3%, to 2,074.92.
Decliners and advancers were even on the New York Stock Exchange.
Bonds were little changed, with the yield on the 10-year U.S. Treasury note slipping to 4.1%, from 4.11% on Tuesday. The dollar fell against the euro for the first day in six after a government report showed foreign investors purchased U.S. assets at a slower-than-expected pace.
In its weekly update on fuel supplies, the government reported an unexpected 1.8-million-barrel draw on crude, a deeper decline than analysts expected. The inventory data eclipsed OPEC’s announcement that it would increase production by 500,000 barrels this year if prices didn’t fall. Crude oil rose 57 cents a barrel to $55.57 in New York trading.
Although retreating energy prices in past months were credited for the drop in the Labor Department’s CPI reading, the short-term surge in crude sent stock buyers fleeing. Still, with market watchers worried about interest rates and inflation a primary concern of the Federal Reserve, the improved CPI raised hopes that the central bank will be less aggressive with its rate policy.
The Fed’s “beige book” assessment of the nation’s economy, released at midday, also was consistent with “the Goldilocks economy,” which is neither too hot nor too cold, said Alexander Paris, an economist and market analyst for Chicago-based Barrington Research. The Fed’s 12 regional banks described their areas’ economic activity with such words as “moderate,” “solid” and “well sustained.”
“The broad expansion is still going on but a little slower than it was earlier this year,” Paris said.
Analysts said the market drew some comfort from the beige book, enabling the major indexes to move out of negative territory and finish the day with modest gains.
Conventional wisdom is that Fed policymakers will raise rates for the ninth time when they meet at the end of the month, but investors are split on when the rate hikes, which began a year ago, will end.
Oscar Gonzalez, an economist at John Hancock Financial Services, blamed valuations for 2005’s lackluster performance, saying stocks ended last year at such high prices, the more recent good news hasn’t helped.
“If you look at the market from the beginning of the year, we are almost treading water at this point,” he said. “Maybe investors were hoping that economic data, financial data and profits were going to be even better than what we’ve seen so far.”
In other market highlights:
* An S&P; 500 index of energy shares increased 1.2% for the best performance among 10 industry groups. Exxon advanced 70 cents to $59.25 and Chevron added 71 cents to $56.84.
* A gauge of materials stocks climbed 0.8% for the second-biggest increase in the S&P; 500.
U.S. Steel gained $2.50, or 6.5%, to $40.71. Industrial production increased more than expected last month in China, the world’s largest consumer of steel, copper and cement. Phelps Dodge, the No. 3 copper producer, added $3.82 to $94.52.
* Dow component JPMorgan Chase rose 11 cents to $35.71 a day after saying it would pay $2.2 billion to the University of California and others that sued it over its handling of Enron’s fraudulent finances. Like other Wall Street firms, JPMorgan Chase was accused of allowing Enron to continue raising money through stock and bond sales despite its downward spiral.
* Wall Street firm Bear Stearns gained $1.01 to $101.34 after saying earnings rose 5% from a year earlier, based on strength in its institutional stock trading business. Its results beat analyst estimates by 22 cents a share.
* Napster rose 10 cents to $4.43. The Los Angeles firm agreed to start an online music service in the coming year with Ericsson to compete against Apple Computer and Motorola.
