Stocks Little Changed, but Treasuries Rally
Wall Street’s fixation with oil prices left stocks little changed Wednesday, but U.S. Treasury debt rallied for a second straight session, buoyed by talk of possible interest rate cuts in Europe.
The yield on the benchmark 10-year U.S. Treasury note fell to 3.94%, from 4.04% on Tuesday -- the biggest one-day drop since December. Bond yields fall as their prices rise.
Treasuries followed a rally in European bonds for a second day as investors increased bets that the European Central Bank would cut its interest rate target after Sweden lowered borrowing costs.
“The possibility of rate cuts in Europe will keep global yields depressed and in turn will have an indirect impact on U.S. benchmark rates,” said Amitabh Arora, chief interest rate strategist at Lehman Bros. Holdings Inc. in New York.
In Europe, the yield on the benchmark 10-year German government bond slid to 3.15% from 3.22%, and is nearing the generational low of 3.13% set June 8.
Falling European bond yields helped drive stock indexes on the Continent to multi-year highs. The German DAX index added 11.49 points, or 0.3%, to 4,619.60; France’s CAC index rose 7.53 points, or 0.2%, to 4,229.55; and Britain’s FTSE-100 index added 17.20 points, or 0.3%, to 5,099.30. All were the highest closing levels since 2002.
Stephen Massocca, co-chief executive at Pacific Growth Equities in San Francisco, said the rally in U.S. Treasury bonds was good for stocks.
“That kind of move in bonds means you’ll have to move more money into equities for better returns,” he said.
Oil futures traded above $59 a barrel after the Energy Department released data showing crude inventories fell 1.58 million barrels for the week. The drop, although lower than expected, initially sent stocks sliding, but they soon recovered most of their lost ground.
A barrel of light crude settled at $58.09, down 95 cents.
The Dow Jones industrial average fell 11.74 points, or 0.1%, to 10,587.93. Broader stock indicators were up. The Standard & Poor’s 500 index was up 0.27 point, or 0.02%, at 1,213.88, and the Nasdaq composite index rose 0.96 point, or 0.05%, to 2,092.03.
Stocks have traded in a narrow range for weeks in anticipation of the Federal Reserve Open Market Committee meeting June 29 and 30. Investors expect the Fed to raise rates for the ninth time since last year at the meeting; what they’re waiting for are signs of the Fed’s longer-term plans for rates.
Wall Street is also waiting to see whether second-quarter earnings live up to the strong results in the first quarter.
In other market highlights:
* Ford dropped 49 cents, or 4.4%, to $10.68 for the steepest loss in the S&P; 500.
The No. 2 U.S. automaker expects earnings of $1 to $1.25 a share, excluding some costs, compared with a previous forecast of $1.25 to $1.50. Ford on April 8 lowered the forecast from a range of $1.75 to $1.95. The company also announced plans to eliminate 1,700 more jobs because of weak sales.
Ford’s decline sent a gauge of auto-related shares down 1.7%, the biggest drop among 24 industry groups in the S&P; 500. General Motors, the largest automaker, lost $1.09 to $34.82. Delphi, the No. 1 U.S. auto-parts maker, fell 22 cents to $5.06. The company said it would reduce its quarterly dividend by half.
“I’m more concerned about second-half earnings,” said Manfred Gridl, a fund manager at Deka Investment in Frankfurt, Germany, which oversees about $6 billion in U.S. equities. “For car companies we’ve seen a couple of disappointments.”
* Shares of Jabil Circuit surged after the electronics maker said sales last quarter topped analysts’ estimates. Jabil had the best performance in the S&P; 500, climbing $2.98, or 10%, to $31.42.
* William Lyon Homes continued to climb after a special committee of the Newport Beach-based home builder’s board on Monday rejected an $82-a-share takeover offer from the company’s founder. The shares rose $2.35 to $94.90.
* Among new issues, pharmacy chain Allion Healthcare jumped $3.50 to $16.50 on its first day of trading. But Builders FirstSource, a building products company, fell 56 cents to $15.44 in its initial trading session.
