Shares Get a Boost From U.S. Pressure on China
Stocks rallied for a second straight session Tuesday as investors welcomed the Treasury Department’s move to put pressure on the Chinese currency system and, perhaps, eventually reduce the U.S. trade deficit.
Investors reacted decisively after the Bush administration said Tuesday afternoon that China might be using its monetary policies to unfairly affect trade. The Dow jumped 70 points higher in 23 minutes, for a two-day gain of 191 points. The technology-heavy Nasdaq composite index climbed past the 2,000 mark for the first time in more than a month.
Retailers led the rally after Home Depot and J.C. Penney reported higher-than-expected earnings. Oil-related shares and producers of raw materials, the worst performers last week, attracted bargain hunters.
The market began the day lower after the Labor Department’s producer price index showed higher-than-expected increases in wholesale prices in April. With the counterpart consumer price index due before today’s session, analysts warned that Wall Street’s late rally could be short-lived.
“It’s encouraging to see these kind of gains two days in a row, and I guess I’m cautiously optimistic,” said Neil Massa, a trader at John Hancock Funds. “But all this can be erased tomorrow with one number.”
The Dow rose 79.59 points, or 0.8%, to 10,331.88, after rising 112.17 points Monday. The Standard & Poor’s 500 index was up 8.11 points, or 0.7%, at 1,173.80.
Nasdaq gained 9.72 points, or 0.5%, to 2,004.15, its best close since April 12.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange.
Crude oil futures closed moderately higher, though the Treasury’s stance on China helped Wall Street shrug off the increase. A barrel of light crude settled at $48.97, up 36 cents, in New York trading.
China’s yuan currency is pegged to the dollar, which has made China far more competitive than the U.S. due to its lower labor and materials costs. Although not outright accusing China of currency manipulation, the Treasury Department said it might do so in the future unless the Chinese government switches to a flexible exchange system.
Investors reacted positively for two reasons, analysts said.
First, “It’s almost like we’re giving them [China] an ultimatum that they have to do something,” said Romeo Dator, who runs a China region fund and helps manage $100 million of global stocks at U.S. Global Investors in San Antonio. “If they do adjust the currency, that would lessen the possibility of a trade war. Free trade is just taken as a positive by the market overall.”
In addition, an upward revaluation of the yuan could help U.S. manufacturers by making their goods less expensive for Chinese buyers, experts said.
In other market highlights:
* Treasury bond yields dipped despite the inflation report. Traders said some bond buyers were focused on another statistic: The Federal Reserve said April industrial production unexpectedly fell, a sign that the economy may be struggling to pull out of a first-quarter slowdown. The benchmark 10-year T-note slid to a three-month low of 4.11% from 4.13% on Monday.
* Retail stocks climbed 1.7% as a group for the best performance among two dozen industry indexes in the S&P; 500. The sector -- under scrutiny after Wal-Mart Stores last week warned of weakness in its second-quarter earnings -- had a number of positive earnings reports.
Home Depot added $1.49 to $38.86 after reporting that first-quarter operating income climbed to 60 cents a share, beating analysts’ average estimate of 55 cents. J.C. Penney rose $1.52 to $49.35. The company’s first-quarter profit surged to 63 cents a share, exceeding analysts’ average estimate of 61 cents.
Staples gained $1.02 to $21.56. First-quarter earnings were 21 cents a share; analysts expected 20 cents.
* Most energy shares rebounded somewhat from last week’s losses. Chevron increased $1.41 to $51.47. ConocoPhillips rose $2.12 to $98.90 and Occidental Petroleum added $1.15 to $67.05.
* Other raw-materials stocks joined energy shares on the comeback trail. Alcoa added 61 cents to $27.21, while Freeport-McMoRan Copper & Gold rose $1.42 to $33.50.
* Deere rallied $2.50 to $62.29 after the farm-machinery giant reported a 27% rise in quarterly earnings and boosted its 2005 sales and profit outlook. Caterpillar gained $1.58 to $91.96.
* Merck retreated 44 cents to $33.01. Brokerage Credit Suisse First Boston warned that the drug giant’s product inventories were rising, which could hurt its future profit margins.
* Stun-gun maker Taser fell $1.35 to $10.33. Taser said it would restate 2004 earnings after finding an error related to accounting for stock options.
* Cogent slumped $2.02 to $20.75 one day after the South Pasadena-based fingerprint identification systems maker said it planned to sell 11 million new shares.
