Stocks Close Higher on Rebound
Stocks rebounded from an earlier decline to post moderate gains Friday as investors looked past a mediocre outlook from Pfizer and a new record U.S. trade deficit. The major indexes finished the week mixed.
Pfizer’s profit warning dragged the Dow Jones industrial average into negative territory for most of the day and added to traders’ concerns about weak overall corporate earnings in 2006 amid a slowing economy. A fourth straight record trade deficit of $725.8 billion last year also left Wall Street wondering whether rising energy and import prices could spark domestic inflation.
But the market managed to recoup its losses and pressed higher late in the day, giving the Dow a sturdy advance this week. Analysts have been expecting volatility among stocks following January’s rally and with no major events on the horizon to clarify investors’ uncertainty about the economy.
Steven Goldman, chief market strategist for Weeden & Co., said traders were assessing the latest round of earnings reports and whether stocks are fairly priced -- or even overpriced. He added that the widening gap between short- and long-term bond yields also stoked worries about a downturn.
“To me, valuation on the average stock has reached fully valued territories,” Goldman said. “If you look at price-to-earnings-ratios, they’re within 7% of the all-time high.”
The Dow rose 35.70 points, or 0.3%, to 10,919.05, after losing as much as 63 points early in the session.
Broader stock indicators also reversed course to close higher. The Standard & Poor’s 500 index gained 3.21 points, or 0.3%, to 1,266.99 and the Nasdaq composite index advanced 6.01 points, or 0.3%, to 2,261.88.
For the week, the Dow was up 1.2%, the S&P; 500 added 0.2% and the Nasdaq slipped 0.03%.
U.S. Treasury yields rose as dealers braced for potentially troublesome comments from new Federal Reserve Chairman Ben S. Bernanke in testimony to Congress next week. Bond yields move in the opposite direction as prices.
In recent days the market has become more convinced that Bernanke’s comments will be upbeat on the economy and thus bearish for bond prices, setting the stage for perhaps two more additional rate increases by the Fed.
The 10-year Treasury note rose to 4.59% from 4.54% on Thursday. Gold futures plunged $14.30 an ounce to $550.20.
Crude oil futures slipped following a report suggesting that high prices were starting to stifle demand. The drop came even as concerns about political unrest in oil-producing countries persisted, with a barrel of light crude losing 78 cents to $61.84 in New York trading.
In other market highlights:
* Investors were unhappy with a lowered sales outlook for Pfizer’s top-selling Lipitor cholesterol drug. The company’s 2006 earnings forecast of $2 a share was 3 cents short of analysts’ estimates. Pfizer dropped 66 cents to $25.68.
* Insurer Aon rallied $3.23, or 9.3%, to $38.11 for the best performance in the S&P; 500. Its fourth-quarter net income surged to $224 million from $81 million on growth in its North American brokerage business, lower litigation expenses and a gain from the sale of a unit.
An index of insurers gained 1% for the fourth-best performance among 24 industry groups in the S&P; 500. American International Group added 78 cents to $67.90, a day after agreeing to pay $1.6 billion to settle fraud and bid-rigging allegations.
* A gauge of energy shares retreated 0.5% for the worst performance among 10 industry groups in the S&P; 500 as oil prices declined. Valero Energy, the biggest U.S. refiner, slid $2.33 to $50.65. Exxon Mobil fell 49 cents to $59.43.
* Oracle confirmed late Thursday that it would cut as many as 2,000 jobs as part of its effort to absorb its recent acquisition of Siebel Systems and issued earnings guidance in line with Wall Street forecasts. Oracle finished flat at $12.69.
Among other technology issues, Google added $3.84 to $362.61 and Apple Computer rose $2.36 to $67.31.
