Stocks Rally as Oil Drops
Stocks rallied Tuesday, propelling the main Nasdaq index to a fresh five-year high, as oil prices dropped and comments by Federal Reserve officials hinted that the central bank was almost done with raising interest rates.
The interest-rate sentiment helped financial shares, as did a better outlook on bank profits. Crude oil fell nearly 1% on estimates indicating that U.S. crude inventories rose again last week, alleviating some fears that high energy costs would drag on corporate profits.
The Dow Jones industrial average rose 58.91 points, or 0.5%, to 11,203.85. The Standard & Poor’s 500 index was up 8.12 points, or 0.6%, to 1,305.93. The Nasdaq composite index ended at 2,345.36, up 8.62 points, or 0.4%.
Volume was moderate. Advancers outnumbered decliners on the New York Stock Exchange by 7 to 5 and on Nasdaq by 8 to 7.
Richmond Federal Reserve President Jeffrey Lacker said the U.S. economy was close to “a balanced growth path,” which could mean interest rates have reached a neutral level. Investors also interpreted comments on inflation from Dallas Fed Bank President Richard Fisher as dovish on further interest-rate hikes.
The remarks “may have led Fed watchers to conclude the Fed may raise interest rates at its meeting in May, and then stop,” said Hugh Johnson, chief investment officer of Johnson Illington Advisors.
The absence of new economic data, however, left the bond market without a clear direction after weeks of heavy selling. Ten-year U.S. Treasury notes were unchanged at 4.9%.
Oil prices fell as traders took profits from the recent rally, though concerns about the political situations in Iran and Nigeria continued to pressure the market. A barrel of light crude settled at $66.23, down 51 cents, in New York trading.
Gold and copper prices slipped Tuesday as investors pocketed profits one day after running up the markets to giddy heights. Gold futures fell $3.40, to $586 an ounce, in New York trading.
In other market highlights:
* Shares of Citigroup and JPMorgan Chase, both Dow components, rose after Merrill Lynch analysts raised their first-quarter earnings estimates for the banking companies.
“People were worried the financial companies wouldn’t have a strong earnings trend because of the flat yield curve, but now it’s been flat for a while, and the earnings are still coming through,” said Alfred Kugel, chief investment strategist at Atlantic Trust/Stein Roe.
Citigroup shares gained 80 cents to $48.21, making it the top gainer in the S&P; 500, after the Federal Reserve Bank of New York lifted a ban that prevented the company from making acquisitions. JPMorgan was up 34 cents to $42.27.
* Helping the Nasdaq, Google rallied 3.8%, or $14.64, to $404.34. Analysts linked the stock’s advance to increasing investor optimism about Google’s quarterly results.
* Tenet Healthcare shot up 8.4%, or 61 cents, to $7.90 just before the close of regular trading after news that a federal judge in San Diego had declared a mistrial in a criminal case in which the company was accused of bribing doctors to refer patients to a Tenet hospital.
* Utilities, which become more attractive when interest rates and bond yields are lower or stable, added 1.1% for the second-biggest advance among sectors in the S&P; 500. AES, a power producer with businesses in 26 countries, increased 45 cents to $17.13. AES said fourth-quarter profit surged 75% on higher electricity rates in Brazil and Argentina and lower taxes.
* Retailers rallied on lower oil prices, with an S&P; 500 measure climbing 1.1%. Best Buy, the No. 1 U.S. electronics retailer, gained $1.56 to $57. Home-improvement chain Lowe’s increased $1.33 to $65.51.
“Certainly part of it is driven by oil prices,” said Brian Stine, investment strategist at Allegiant Asset Management in Cleveland. “Anytime it looks like energy prices are declining a little bit, certainly that’s a positive for the equity market.”
Circuit City Stores climbed on takeover prospects, adding 76 cents to $24.17 after Deutsche Bank Securities analysts including Michael Baker said in a note that the retailer was an appealing target for a buyout by private equity investors. Circuit City declined to comment.
* Caterpillar and 3M led industrial stocks higher.
Caterpillar climbed $1.80 to $75.30 and was the top contributor to the Dow average’s advance. The maker of earthmoving equipment stands to gain as much as $5 billion in sales as a boom in oil squeezed from Canadian sand boosts demand. Oil-sands miners will need to add almost 300 Caterpillar mining trucks and graders by 2013, according to Finning International.
3M, the maker of 50,000 goods including Scotch tape and cancer drugs, added $1.16 to $77. The company said it was considering a sale of a pharmaceuticals unit.
* International Paper gained 18 cents to $34.90. The company agreed to sell 5.1 million acres of timberland to two investor groups for $6.1 billion.
* Check Point Software Technologies declined $1.07 to $18.76 after the maker of computer-security software reported first-quarter earnings below expectations.
