Wall Street finished mostly higher in light trading Wednesday, boosted by a gross domestic product report that showed the economy expanding at a faster pace than previously thought, but with less inflation.
The news sent long-term Treasury bond yields to fresh five-month lows.
The Commerce Department reported that the economy as measured by GDP grew at a 2.9% annual rate in the second quarter, better than first estimated last month though still slower than in the first quarter.
Investors have been scrutinizing economic reports to determine whether the economy is slowing too much, a trend that could hurt . corporate earnings. So a slight improvement in the GDP was a welcome sign for investors, who now await the August employment report Friday for further direction.
“The GDP is exactly what we wanted to see, and the economy continues to expand and it limits inflation worries,” said Ryan Larson, senior equity trader at Voyageur Asset Management, a subsidiary of RBC Dain Rauscher. “GDP numbers are still a lagging indicator, and the market pulled back because investors are still looking for concrete evidence the Fed is in pause mode.”
The markets got support for much of the session from oil prices that have dropped to two-month lows this week, although a barrel of crude eventually closed up 32 cents at $70.03 in New York trading. Concerns about a strike in Nigeria wiped out an earlier decline that followed news of an increase in U.S. energy stockpiles.
The Dow Jones industrial average rose 12.97 points, or 0.1%, to 11,382.91.
Broader stock indicators were mixed. The Standard & Poor’s 500 index was down 0.01 of point, nearly unchanged, closing at 1,304.27. The Nasdaq composite index rose 13.43 points, or 0.6%, to 2,185.73. The Dow and S&P; 500 have been trading near their highest point in three months, and the Nasdaq is close to a seven-week high.
Stephen Wood, a senior portfolio strategist with Russell Investment Group, said investors were growing optimistic that the Federal Reserve wasn’t likely to raise interest rates. The Fed refrained from raising rates at its Aug. 8 meeting after 17 straight hikes since June 2004. “The 500-pound gorilla in most people’s investment thesis is, will the Fed go too far?” Wood said. “I think we’re in a slowdown, and not a recession, and if history is any indicator, the next Fed move might even be a rate cut.”
Bond yields sank further on the GDP report and on a solid auction of 5-year Treasury notes. Demand for the $14 billion in new notes was above the average of similar auctions this year, and indirect bidders, including Asian central banks, also took home an above-average share of the notes.
“The auction reinforced what the price action has been telling us the last couple of days,” said Adam Brown, director of the Treasury trading desk at Barclays Capital in New York. “Right now, there is good buying going on at these levels.”
The 5-year note sold for a yield of 4.74%. The yield on the benchmark 10-year note fell to a five-month low of 4.75%, from 4.78% on Tuesday. .
Stock trading was erratic Wednesday, with the Dow changing direction several times. Analysts noted that the last week in August was generally a slow and unpredictable time for stocks. “I’m not reading a lot into what’s happening this week because trading volume is light,” said Robert Streed, a portfolio manager with Northern Trust’s Select Equity Fund. “It doesn’t take much trading to push the market a couple points in one direction or another.”
In other market highlights:
* Technology companies in the S&P; 500 added 0.9% for the top gain among industry groups. Lucent Technologies added 8 cents to $2.38 after the largest U.S. maker of telephone equipment said it planned to fight a shareholder lawsuit seeking to block its merger with Alcatel.
PMC-Sierra, a maker of semiconductors for telecommunications equipment, rose the most in the S&P; 500, jumping 36 cents to $6.68. Corning, the world’s biggest maker of glass for liquid- crystal displays, advanced 64 cents to $22.65, and Motorola, the No. 2 mobile-phone maker, added 42 cents to $23.86.
“There’s a general feeling that tech was drastically oversold,” said Greg Palmer, head of equity trading at Pacific Crest Securities in Portland, Ore. “People are back investing in technology because they think that there is still earnings growth there.”
* ADC Telecommunications dropped $1.07, or 7.3%, to $13.68 for the top decline in the S&P; 500. The maker of phone networking equipment lowered its 2006 revenue forecast for a second time in as many months. * Costco Wholesale retreated $2.07, or 4.2%, to $47.18. The warehouse club chain said earnings for the year ending Sept. 3 would be as much as $2.26 a share, less than an earlier forecast of as much as $2.33 a share. The company cut prices on electronics and furniture, narrowing margins.
* Pier 1 Imports jumped 41 cents to $6.47 after the home- furnishings retailer agreed to sell its credit card business for about $155 million to JPMorgan Chase, which slipped 24 cents to $45.73.
* Lockheed Martin, the biggest U.S. defense contractor, lost 52 cents to $82.26 after Prudential Equity Group cut its recommendation on the shares to “underweight” from “neutral.”
Lockheed “is not immune to potential budget pressures or a contracting environment that is less favorable to industry,” Prudential analysts wrote in a note.
* Public Service Enterprise Group slipped $2.32 to $68.58. Exelon said the status of a New Jersey regulatory review made it less probable that its planned purchase of Public Service would be completed. Exelon lost 18 cents to $60.12.