Stocks Mixed; Yields Fall
Stocks finished mixed Tuesday and the 10-year Treasury note yield fell toward the 4% mark after the Federal Reserve, in the minutes of its last meeting, sounded upbeat about the economy and on guard against inflation.
The equity market traded in a relatively narrow range and rallied modestly near the end of the session. The Nasdaq composite index, dominated by technology shares, rose for an eighth straight session.
Some analysts said stock investors were mostly relieved that the Fed’s meeting minutes showed optimism about the economy, and that the tone didn’t suggest the central bank would raise short-term interest rates at a faster pace than quarter-point increments.
“The biggest thing to take home is that the ‘measured’ hikes stay on,” said Brian Williamson, a trader at Boston Company Asset Management, referring to the Fed’s term for its steady pace of rate increases since June.
At the same time, bond investors were cheered by the Fed’s vigilant attitude about inflation, some analysts said. Optimists believe the Fed may rein in inflation with more rate increases, which could allow long-term interest rates to stay at current levels or fall further, they said.
“For many investors, it’s OK to hold a 10-year note at [current] levels even if the Fed raises rates once or twice” more, said Jeff Given, who manages $10 billion of bonds at John Hancock Funds in Boston.
The 10-year T-note ended at 4.03%, a fresh three-month low and down from 4.06% on Monday. The T-note yield is a benchmark for mortgage rates.
In the stock market, the Dow Jones industrial average dipped 19.88 points, or 0.2%, to 10,503.68. The Dow jumped 3.3% last week amid a broad rally fueled by lower oil prices and a benign inflation report.
Among broader indexes Tuesday, the Standard & Poor’s 500 inched up 0.21 of a point, or 0.02%, to 1,194.07.
The Nasdaq index continued to lead the market: It rose 4.97 points, or 0.2%, to 2,061.62, and now is up 8.3% from its 2005 low reached April 28.
But declining stocks narrowly outnumbered winners on Nasdaq and on the New York Stock Exchange. Trading volume remained muted.
Crude oil futures rose for a second day after sliding last week to three-month lows. Near-term futures in New York ended at $49.67 a barrel, up 51 cents.
In Europe, stocks eased and bond yields fell after the Organization for Economic Cooperation and Development called on the European Central Bank to cut its benchmark interest rate for the first time in almost two years to boost flagging growth.
Germany’s main share index dipped 0.2% and the French market lost 0.4%. The 10-year German government bond yield ended at a generational low of 3.30%, down from 3.34% on Monday.
In other market highlights:
* GM hurt the Dow index, retreating 90 cents to $31.69, after its debt was cut to junk by Fitch Ratings. Fitch’s move follows S&P;’s decision May 5 to lower ratings of both GM and Ford Motor to below investment grade.
GM’s bonds also lost value Tuesday. But the junk bond market overall improved as yields declined. The yield on an index of 100 junk issues tracked by KDP Investment Advisors fell to 7.80% from 7.88% on Monday.
* In the rebounding tech sector, Intel jumped 46 cents to $26.96, its 17th advance in 18 sessions. KLA Tencor gained $1.57 to $45.02, Cisco Systems rallied 45 cents to $20 and McAfee surged $1.10 to $28.
JDS Uniphase added 9 cents to $1.64 after it agreed to buy Acterna for $760 million to bolster sales of testing and management products for cable and telephone providers.
“Many people have been disappointed in technology, and I think that’s about to turn around,” said Larry Smith, chief investment officer of Third Wave Global Investors.
One factor that may be lifting the Nasdaq market: The number of shares that had been sold “short,” in a bet on falling prices, hit a record high of 5.72 billion as of May 15, Nasdaq said Tuesday. As stocks rally, traders who have sold short are pressured to buy stock to close out their bets, which can add fuel to the rally.
* Companies with asbestos-related costs soared as the Senate moved closer to considering a $140-billion fund for asbestos-exposure victims. The legislation would eliminate lawsuits that have forced 74 companies into bankruptcy protection.
Owens Corning, the largest U.S. insulation maker, jumped $1.02 to $4.55. W.R. Grace, a chemical and building material maker, soared $1.37 to $10.50. USG, the world’s biggest wallboard manufacturer, shot up $4.03 to $47.53.
* Real estate investment trust shares pulled back after their recent rally that lifted a Bloomberg News index to a record high Monday. Vornado Realty lost $1.10 to $80.15, Boston Properties fell $1.44 to $66.80 and Kimco Realty was down 97 cents at $57.76.
* Toro slumped $2.32 to $46.18. The maker of lawn mowers said it might not meet quarterly profit expectations because bad weather in parts of the country has left retailers with high inventories of yard equipment.
