Attacks Halt Stock Rally
Bombings at three hotels in Jordan erased most of an afternoon rally Wednesday on Wall Street, leaving stocks with only marginal gains as fears about terrorism resurfaced.
The day ended with stocks such as Google and Marvel Entertainment down sharply. Before the bombings, stocks had advanced modestly as investors hoping for a fourth-quarter rally did their best to create one.
Investors had spent the morning worrying about consumer spending after PepsiCo reduced its year-end forecast and said it would restructure. Traders were already concerned about spending after high-end home builder Toll Bros. cut its 2006 forecast Tuesday.
A pullback by PepsiCo’s much broader customer base is even more worrisome, although PepsiCo shares ended the day unchanged at $58.30.
The morning’s declines triggered short-covering and program buying. Stocks were also boosted by portfolio churn as managers took profits where they could and moved into other equities.
The Dow Jones industrial average rose 6.49 points, or 0.06%, to 10,546.21.
Broader stock indicators also closed slightly higher. The Standard & Poor’s 500 index rose 2.06 points, or 0.17%, to 1,220.65, and the Nasdaq composite index rose 3.74 points, or 0.17%, to 2,175.81.
Yields on U.S. Treasury notes surged as demand from international investors, who own about half of all U.S. government debt, declined at the Treasury’s auction of five-year notes. Bond yields rise as their prices fall.
Bidders including foreign central banks bought 21.1% of the $13 billion in five-year notes, down from 45.8% last month, the Treasury said. The government’s last debt sale this week is a $13-billion offering of 10-year notes today.
“The foreign bid was a disappointment,” said Alan De Rose, a trader and Treasury market strategist at CIBC World Markets in New York, one of the 22 primary U.S. government securities dealers that are obligated to bid at the auctions. “There will be plenty of pressure on the market” because of the results of the auction, he said.
The yield on the benchmark 10-year note rose to 4.64% from $4.56% on Tuesday.
Crude oil futures fell. A barrel of light crude was quoted at $58.93, down 78 cents, in New York trading.
Stocks remain nearly flat for the year, and strategists are split between those who think a fourth-quarter rally is almost certain and those who recommend investors shift capital away from stocks and toward cash and bonds.
William Hummer, chief economist at Wayne Hummer Investments, is in the former group. He believes that steady interest rates, solid earnings and a strengthening U.S. dollar will propel the market higher.
“I see stocks being as undervalued now as they were at the end of 1999,” he said.
By contrast, Merrill Lynch’s U.S. Strategy report for November said, “cash obviously beats our expected return” for the S&P; 500.
Wednesday’s only meaningful economic release was the mostly ignored wholesale inventories report. On days when news is thin, the market can move merely because one group has decided to make its play.
In other market highlights:
* Federated, the owner of Macy’s and Bloomingdale’s, had the second-biggest gain in the S&P; 500, climbing $4.94, or 7.7%, to $68.85. The company earned 36 cents a share, excluding some items, in its fiscal third quarter ended Oct. 29. On that basis, Federated was estimated to earn 23 cents, according to Thomson Financial. Revenue jumped 64% from its acquisition of May Department Stores.
Spending on consumer items before the holiday season may help lift the market, if history is any guide. The S&P; 500 has advanced in seven of the last eight Decembers by an average of more than 2%.
* Energy stocks as a group dropped 0.7%. Valero Energy, the largest U.S. refiner, dropped $4.10 to $99.55. Chevron, the No. 2 U.S. oil producer, lost $1.09 to $56.77.
* Fisher Scientific International rallied $6.78, or 12%, to $63.88 for the best performance in the S&P; 500. The supplier of medical equipment boosted its full-year per-share profit forecast to $3.52 to $3.57 from $3.47 to $3.52. The company cited “strong operating results and a lower tax rate.”
* Marvel declined $3.98 to $14.06 after it forecast a difficult 2006, and Google fell $10.75 to $379.15.
* Pixar Animation Studios rose $5.71 to $56.59, an all-time high. The company reported quarterly earnings after the market close Tuesday that beat analysts’ estimates, and the studio told investors that distribution deal talks between Pixar and Walt Disney were “very productive.” Pixar, the studio behind films such as “Finding Nemo” and “The Incredibles,” is talking with Disney about a new deal that would give Pixar far more ownership of its films.
* Tommy Hilfiger gained 95 cents to $17.75 after a news report that the company had received five separate purchase bids.
* Auto parts maker Visteon dropped $1.08, or 14%, to $6.64, a day after reporting a loss of $200 million because of production cuts at Ford.
