Stocks, Oil Prices Move Higher
Stocks finished modestly higher Monday despite a rebound in crude oil prices and unease over the Federal Reserve’s meeting today.
Crude futures rallied in afternoon trading, reversing last week’s trend and adding to worries about high energy prices as the summer driving season approaches. A barrel of light crude settled at $50.92, up $1.20, on the New York Mercantile Exchange.
Fed policymakers were expected today to raise their benchmark short-term interest rate by a quarter of a percentage point, to 3%. It would be the eighth such increase since June.
Many investors were waiting to see what the central bank would say in its economic assessment statement about the recent slowdown in growth and the prospects for inflation.
“There’s a certain amount of caution, which is preventing investors from putting more assets to work,” said Michael Sheldon, chief market strategist at Spencer Clarke. “Right now, there are too many question marks about the economy that need to be answered before we can move forward.”
The Dow Jones industrial average rose 59.19 points, or 0.6%, to 10,251.70.
Broader stock indicators also moved higher. The Standard & Poor’s 500 index was up 5.31 points, or 0.5%, at 1,162.16, and the Nasdaq composite index gained 7 points, or 0.4%, to 1,928.65.
Advancing issues outnumbered decliners by about 8 to 5 on the New York Stock Exchange in moderate trading.
The bond market was little changed, with the yield on the 10-year Treasury note easing to 4.19%, from 4.20% on Friday. Traders refrained from any big bets before today’s Fed meeting and Friday’s report on April employment trends.
In a report Monday, the Institute for Supply Management said manufacturing activity slowed slightly more than expected in April. The ISM’s manufacturing index came in at 53.3, compared with 55.2 in March. Economists had expected a reading of 55. Any reading above 50 indicates growth in activity.
On a better note, the government said construction spending rose 0.5% in March, unchanged from the previous month but better than the 0.3% economists expected.
With conflicting economic data pointing to a malaise heading into summer, investors will look to the Fed for a more definitive take on the economy’s direction, analysts said.
In other market highlights:
* An index of energy shares gained 1.8% for the biggest advance among the S&P; 500’s 10 industry groups. ChevronTexaco rose $1.21 to $53.21 and Occidental Petroleum gained $1 to $70.
* American International Group rallied $2.59, or 5%, to $53.44 for the biggest jump in the Dow average. The world’s biggest insurer said it would correct five years of financial results for reinsurance and other transactions that inflated net worth by $2.7 billion.
In the announcement, the company assured investors that AIG made the accounting missteps to present smooth quarterly profit for Wall Street analysts, rather than mask underlying weakness in the insurer.
* Elsewhere in the insurance sector, Woodland Hills-based Zenith National soared $3.36 to a record $60.87. The company last week reported sharply higher first-quarter profit.
* Internet search engine Google added $2.29 to $222.29. The company will see higher earnings due to the “significant growth in sponsored-search advertising,” Prudential analyst Mark J. Rowen wrote in a report.
* Neiman Marcus Group slumped $5.36 to $92.96. The ritzy department-store chain agreed to be bought by Texas Pacific Group and Warburg Pincus for $5.1 billion. The two buyout firms said they would pay $100 a share. The stock had surged 50% from its 2005 low on Jan. 28.
* Shares of Morgan Stanley tumbled $3.23 to $49.39 after the brokerage’s board, in an emergency weekend meeting Saturday, endorsed Chairman and Chief Executive Phil Purcell. The board made changes to make it easier to oust Purcell but did not dismiss him or strip him of the chairman title.
Other brokerages slumped after UBS cut its rating on them, citing concern about demand for stocks. Merrill Lynch fell 85 cents to $53.08, Goldman Sachs slid $2.33 to $104.46, and Lehman Bros. declined $3.27 to $88.45.
* Los Angeles-based Guess rose $1.21, or 9%, to $14.23 after an upgrade from Wachovia Securities, which said the clothing company was well-positioned for sustained growth.
* Imax jumped 79 cents to $8.60. The giant-screen theater designer’s chief executive said the company wasn’t shopping itself, but that a sale to a Hollywood studio would “make sense” in the long run.
* Investment research firm Morningstar priced its initial public offering at $18.50 a share. The stock will begin trading on Nasdaq today under the ticker MORN.
