Stocks Extend Rally to 5 Days
Stock indexes marked a fifth straight day of gains Friday, bucking concerns about lagging consumer sentiment and disappointing second-quarter results from Dell.
Trading got off to a shaky start after the University of Michigan released its preliminary consumer sentiment index, which fell to 78.7 in August, down from 84.7 in July. Wall Street had expected the index to inch down to 83.8, and the greater-than-expected drop was viewed as a signal that the economy might weaken too much.
The weak sentiment index threatened to stall the market’s rally this week, which came amid evidence of lower inflation risk and a gently slowing economy. Yet the market’s recovery from its session lows -- aided by a $36-billion stock buyback announced by Microsoft -- shows that investors remain optimistic that the Federal Reserve will keep the economy strong enough to withstand recession while keeping inflation contained.
“If this rally continues on bad economic news, that’s saying that investors have already made a decision we’re going to have a soft landing in this economy,” said Alexander Paris, an analyst at Barrington Research.
Technology stocks nevertheless saw pressure after Dell reported that second-quarter profit fell 51%, with sales growth slowing to its lowest rate in three years. The world’s largest computer maker -- already reeling from a massive laptop battery recall in the week -- also disclosed that the Securities and Exchange Commission had been investigating its accounting for the last year.
The Dow Jones industrial average rose 46.51 points, or 0.4%, to 11,381.47.
Broader stock indicators also made modest gains. The Standard & Poor’s 500 index climbed 4.82 points, or 0.4%, to 1,302.30, and the Nasdaq composite index gained 6.34 points, or 0.3%, to 2,163.95.
For the week, the Dow jumped 2.6%, the S&P; 500 gained 2.8% and the Nasdaq surged 5.2%.
Yields on U.S. Treasury bonds fell as the weaker consumer sentiment numbers bolstered expectations that the Federal Reserve would not raise interest rates in September.
The yield on the benchmark 10-year Treasury note fell to 4.84% from 4.86% on Thursday. For the week, the yield on the 10-year T-note plunged 0.13 of a percentage point, the biggest one-week drop in the benchmark rate in nearly a year, as bond investors set aside their inflation fears to focus on signs of a slowing economy.
“Such negative economic news could keep Treasury markets rallying”, said Malcolm Polley, chief investment officer at S&T; Wealth Management Group, referring to the consumer sentiment numbers.
“If the consumer is concerned about what is happening with the economy and may lighten up on their spending, that may lead to Fed action and cutting rates,” Polley said.
The Fed held the federal funds rate unchanged at 5.25% at its last policy-setting meeting Aug. 8 after raising the key rate 17 consecutive times over two years.
Oil prices moved higher in trading Friday after tumbling a day earlier on the cooling of Middle East tensions. A barrel of light, sweet crude for September delivery settled at $71.14, up $1.08 from Thursday’s close, in New York trading. On Thursday, oil fell as low as $69.60 a barrel -- a level not seen since June 21.
In other market highlights:
* Microsoft climbed $1.09, or 4.4%, to $25.79, for the top gain in the Dow average. The company boosted its planned open-market stock repurchases by $16 billion, the amount by which a company tender offer that expired Thursday fell short of a goal of buying $20 billion in Microsoft shares.
* Dell’s results, reported after the bell Thursday, cast a shadow over Nasdaq, with the PC maker’s shares falling 64 cents, or 2.8%, to $22.16. Among chip suppliers, Intel fell 16 cents to $18.40 and Advanced Micro Devices fell 27 cents to $23.93. But Dell rival Hewlett-Packard, which reported strong earnings this week, rose 37 cents to $35.52.
* Altria Group and Reynolds American climbed a day after a judge’s ruling held that tobacco companies violated federal racketeering laws, although the judge said she was unable to order financial remedies. Altria gained $3.22, or 4%, to $83.97 and Reynolds rose 91 cents to $64.98.
* A gauge of energy shares advanced 1.5% for the biggest gain among 10 industry groups in the S&P; 500 as oil prices advanced for the first time in five sessions.
* Gap gave up 65 cents, or 3.8%, to $16.65. After the end of trading Thursday, Gap reporting a 53% drop in second-quarter profit that reflected aggressive markdowns.
* TiVo jumped 53 cents to $7.02. The company that pioneered the market for digital television recorders said a judge ordered EchoStar Communications to stop selling competing products that are infringing TiVo’s patent. The judge ordered EchoStar to pay TiVo about $90 million in damages. EchoStar fell 30 cents to $32.45.