Stocks Mixed on Economy Fears
Wall Street slogged to a mixed finish Thursday as short-term interest rates continued to slide while worries mounted about consumer spending patterns and the long-term effects of Hurricane Katrina.
The Dow Jones industrial average lost 21.97 points, or 0.2%, to 10,459.63 in trading bolstered by another heavy wave of buying in the energy-stock sector.
Oil prices rose further, the dollar tumbled and gold jumped.
Analysts saw a disturbing trend in the Commerce Department’s consumer income and spending report for July. Although spending rose by a solid 1%, incomes rose just 0.3%. People spent more than they earned for just the second time in 46 years, and the nation’s savings rate turned negative.
In a separate report, the Institute for Supply Management said its U.S. manufacturing activity index fell to 53.6 in August from 56.6 the previous month.
The economic data, and a hurricane-related meeting Thursday between President Bush and Federal Reserve Chairman Alan Greenspan, encouraged some investors to snap up shorter-term Treasury securities on a bet that the central bank might pause in its credit-tightening campaign.
The yield on six-month T-bills dived to 3.60% from 3.71% on Wednesday, the second straight big decline.
The two-year T-note dropped to 3.73% from 3.82%. It was at 4.15% as recently as Aug. 8.
“The Fed may take a pass at raising rates in one of the next two meetings to assess the effect of the storm,” said Alan De Rose, a trader at CIBC World Markets.
Longer-term yields, however, were modestly higher after sliding on Wednesday. The 10-year T-note rose to 4.03% from 4.01%.
The stock market drifted in a narrow range for most of the session. The Standard & Poor’s 500 index ended with a gain of 1.26 points, or 0.1%, to 1,221.59.
The Nasdaq composite eased 4.19 points, or 0.2%, to 2,147.90.
Still, even in the face of a hurricane that has caused what insurers estimate may be $25 billion in damages, major stock indexes have advanced this week, with the S&P; 500 up 1.4%.
“I think the market’s sending a very clear signal that it wants to move higher,” said Ken Tower, strategist for Schwab’s CyberTrader.
Analysts noted that falling interest rates could help bolster stocks because bonds would offer less competition to equities.
Today will provide new perspective on the economy’s strength: The government will report on net job gains in August.
In futures trading, oil rose again Thursday, with a barrel of crude settling at $69.47, up 53 cents, in New York.
The dollar slumped as investors bet that U.S. interest rates might stop going up, making the buck less attractive to global investors. The euro jumped to $1.249, up from $1.233 on Wednesday and a three-month high.
Gold, which benefits when the dollar weakens, was up sharply. Near-term futures in New York surged $8.50 to $442.30 an ounce.
In other market highlights:
* A measure of energy stocks in the S&P; 500 jumped 2.7%, led by shares of refiners after brokerage Lehman Bros. said the sector would benefit as supply disruptions from Katrina kept prices high. Sunoco, the largest fuel maker in the Northeast, “should be one of the major beneficiaries from the devastating impact of Katrina,” wrote Lehman analyst Paul Cheng. The shares climbed $5.34 to $78.04.
Frontier Oil, which operates refineries in Kansas and Wyoming, jumped $4.55 to $41.20. ConocoPhillips, which has the largest U.S. refining capacity, added $3.06 to $69 as Cheng raised it to “overweight.”
* Some investors continue to buy shares of potential beneficiaries of a post-Katrina rebuilding boom. Manufactured housing maker Fleetwood Enterprises gained 22 cents to $10.33; another company in the sector, Nobility Homes, soared $3.35 to $30.75.
* TXU rocketed $6.70 to $103.72. Shares of the largest Texas power producer will rise with natural gas prices, a Merrill Lynch analyst said in a report. Other utilities also gained. Dominion Resources climbed $2.55 to $79.03, PG&E; added 78 cents to $38.30 and Sempra Energy was up 68 cents to $45.50.
* Some financial shares rose on optimism that borrowing costs would remain in check. Goldman Sachs added $1.94 to $113.12 and Countrywide Financial picked up 58 cents to $34.37. Brokerage Jefferies upgraded Countrywide to “buy” from “hold.”
But Freddie Mac, the government-chartered mortgage finance company emerging from an accounting scandal, slid $2.41 to $57.97. The company’s first-half profit plummeted 60% to $1.64 billion, more than some analysts had expected. Larger rival Fannie Mae declined $1.46 to $49.58.
* On the downside, airline stocks were slammed again by fuel cost concerns. Northwest tumbled $1.06 to $3.97; Continental lost 70 cents to $12.67.
* Some retailers fell on disappointing sales reports. Limited Brands, owner of the Express and Victoria’s Secret chains, dropped 97 cents to $21.01. Federated Department Stores, parent of Macy’s and Bloomingdale’s, lost $3.17 to $65.81.
