Shares Rally on News of GM Labor Accord
Wall Street rallied to finish moderately higher Monday as nervous investors got some reassurance from General Motors’ new labor agreement and a favorable court ruling for cigarette makers. Technology stocks inched up ahead of three major profit reports.
GM’s tentative union deal calmed investors who feared worsening finances at the struggling automaker. The market also got a lift from strong quarterly earnings in the financial sector and the Supreme Court’s refusal to let the government pursue a $280-billion racketeering penalty against tobacco firms.
The upbeat news helped offset another rise in energy prices, as a strengthening Tropical Storm Wilma posed yet another threat to the Gulf Coast region. A barrel of light crude oil climbed $1.73 to settle at $64.36 in New York futures trading.
Ed Peters, chief investment officer at PanAgora Asset Management, said that although third-quarter corporate earnings had been positive, high oil and gasoline prices and continued speculation about the Federal Reserve’s credit-tightening campaign have been holding back the market.
“I think there’s still uncertainty about how far the Fed is going to go, and uncertainty about the effect of higher energy prices on the economy,” Peters said. “We’re seeing a modest bounce-back, but it doesn’t seem to have a lot of conviction.”
The Dow Jones industrial average gained 60.76 points, or 0.6%, to 10,348.10.
Broader stock indicators also advanced. The Standard & Poor’s 500 rose 3.53 points, or 0.3%, to 1,190.10, and the Nasdaq composite added 5.47 points, or 0.3%, to 2,070.30.
Almost five stocks rose for every four that fell on the New York Stock Exchange.
Treasury bond yields continued their recent climb, with the benchmark 10-year T-note rising to a six-month high of 4.50% from 4.48% on Friday. Bond yields rise as their prices fall.
With little economic data due Monday, stock investors were relying on the first wave of third-quarter corporate earnings reports as a gauge on the economy and Gulf Coast recovery efforts after hurricanes Katrina and Rita. Wall Street will pay particular attention to companies’ fourth-quarter and 2006 forecasts for further signs of recovery -- or trouble.
Bill Strazzullo, a strategist at State Street Global Markets, said that as earnings and forward-looking guidance unfold, he would be looking for the S&P; 500 to top 1,200 as an indication of whether Wall Street might see another extended rally.
“In the next week or so, we’re going to see how the fourth quarter is shaping up,” Strazzullo said. “I want to see the market show me it can gain traction above 1,200 again. I’d rather buy that strength than speculate now.”
Among the day’s markethighlights:
* Tech investors received good news after the session, when IBM said its third-quarter profit dipped but still beat Wall Street targets by 13 cents a share on strength in its services unit. IBM rose 24 cents to $82.59, and topped $84 in after-hours activity.
Intel and Motorola, also considered major barometers of the tech sector’s health, are set to report earnings today. Intel climbed 23 cents to $23.46, while Motorola sank 22 cents to $19.94.
* GM jumped $2.11 to $30.09 after the company said it reached a deal with the United Auto Workers to cut healthcare costs. The struggling automaker, however, posted a $1.6-billion loss for the third quarter, far greater than analysts had expected.
* The Supreme Court ruling sent shares of tobacco companies surging, with Philip Morris parent Altria Group rising $4.30 to $74.96, and rival Reynolds American soaring $5.06 to $83.80.
* In the financial sector, Citigroup saw a 35% jump in quarterly profit, due in part to the sale of its life insurance and annuities businesses. Without one-time charges, the company beat analysts’ estimates by 4 cents a share. Nonetheless, Citigroup gave back earlier gains and closed down 23 cents at $44.81.
Wachovia gained 27 cents to $48.12 after the bank posted a 32% rise in quarterly earnings on strong revenue growth from lending and increased fees, as well as its recent acquisition of SouthTrust.
* Energy stocks advanced with oil prices. Anardarko Petroleum gained $1.72 to $91.45 and Valero Energy, the largest U.S. oil refiner, added $2.22 to $103.49. A gauge of energy stocks rallied 0.9%, cutting its quarter-to-date loss to 8.3%.
Bloomberg News was used in compiling this report.
