Profit Taking Muffles Rally
Wall Street’s rally ebbed Thursday despite another sharp drop in oil prices and an upbeat earnings report from Hewlett-Packard.
The Dow Jones industrial average closed up 7.84 points, or 0.1%, to 11,334.96, a fresh three-month high. But the index had been up 45 points at midday.
Although most market indexes scored their fourth straight advance, bullish analysts had been hoping for another strong gain to attract the interest of investors who have been on the sidelines.
The Dow had surged 132 points Tuesday and nearly 97 points Wednesday, on the heels of two relatively tame inflation reports for July.
The inflation data boosted confidence that the Federal Reserve would be able to stay on hold with short-term interest rates. The central bank decided Aug. 8 to pause in its 2-year-old credit-tightening campaign, keeping its key rate at 5.25%.
Oil fell for a fourth straight day Thursday, bolstering hopes that inflation pressures would continue to ease.
Near-term crude futures in New York slumped $1.83 to $70.06 a barrel, the lowest since June 20 and down 9% from the record high of $77.03 reached July 14.
“Energy is going in our favor. It’s breaking down,” said Rick Campagna, a portfolio manager at Provident Investment Counsel in Pasadena. “It feels like we will get inflation under control.”
With the summer driving season winding down, U.S. demand for gasoline fell 1.7% last week, the biggest decline since April, the Energy Department said Wednesday.
The slowing economy also may be cutting energy consumption, analysts say. The Conference Board said Thursday that its index of leading economic indicators slipped 0.1% in July, reinforcing the sense that business activity is downshifting.
Still, profit taking hit stocks at midday, leaving most market gauges with slight gains for the session.
The Standard & Poor’s 500 index added 2.05 points, or 0.2%, to 1,297.48, a three-month high. The Nasdaq composite rose 8.07 points, or 0.4%, to 2,157.61, the highest since July 3.
Winners had a 7-to-6 edge over losers on the New York Stock Exchange and a 3-to-2 advantage on Nasdaq.
Some analysts said the week’s action was encouraging.
“Right now, as opposed to three weeks ago, you’ve got investors willing to buy on some good news, rather than simply not sell on good news,” said Chris Johnson, manager of quantitative analysis at Schaeffer’s Investment Research in Cincinnati. “The mind-set has changed here.”
Stocks had been hammered from mid-May to mid-June on concerns about how much more tightening the Fed might do. Blue-chip indexes have moved higher, in fits and starts, since mid-June, while some other market sectors have continued to struggle.
The Dow is up 5.9% since June 13. The S&P; 500 is up 6% in the same period and is up 3.9% year to date.
The technology-dominated Nasdaq index has come alive this week after trailing the broader market most of the summer. The index is up 4.9% over the last four days but is down 2.2% this year.
Among Thursday’s market highlights:
* The bond market, like stocks, had trouble extending its recent rally. The 10-year Treasury note yield was unchanged at 4.86%, a four-month low. Some traders suggested that long-term yields could not fall further unless investors began to believe that the Fed would start cutting short-term rates.
In a speech, Dallas Fed President Richard Fisher said the central bank wouldn’t tolerate higher levels of inflation and wouldn’t be inhibited from raising interest rates again if it felt that was necessary to damp price pressures.
* Hewlett-Packard helped to lift the Dow, rising 72 cents to $35.15, a five-year high. The company late Wednesday reported better-than-expected quarterly earnings.
Among other tech issues, Salesforce.com surged $5.38 to $33.70 after the software company reported quarterly results that beat expectations.
But Cisco Systems pulled back, losing 25 cents to $20.85 after soaring 22% since Aug. 4. Intel was down 5 cents to $18.56.
* Strength in the Internet sector buoyed Nasdaq. EBay jumped $1.85 to $27.67, Amazon.com rose $1.14 to $29.09 and WebEx Communications gained $1.01 to $36.84, a 52-week high.
* Merck was a drag on blue chips, tumbling $2.35, or nearly 6%, to $38.83. A New Jersey judge threw out a court victory for the company in its ongoing Vioxx painkiller litigation, ordering a new trial.
* Energy stocks were mostly lower as crude prices slid. Valero Energy lost $1.99 to $61.03, Hess was down 90 cents to $48.30 and Baker Hughes fell $1.11 to $73.62.
* Gold mining stocks declined as the metal dropped $13.30 to $615.40 an ounce, a three-week low, in New York futures trading. Agnico-Eagle slid $1.18 to $34.85 and Glamis Gold was off $1.05 to $35.80.
