Chip Maker’s News Gives a Lift to Stocks
Stocks rose Tuesday in an afternoon rally triggered by a surge in shares of KLA-Tencor after the semiconductor equipment company said orders were rising more than it had expected.
The market had spent much of the day deep in the red after sales from Dow component Alcoa and a warning from Lucent Technologies disappointed investors. News of deadly bombings in Mumbai, India’s financial hub, also rattled Wall Street.
Stronger than expected earnings from Pepsi Bottling Group drove its stock to a four-year high and contributed to greater optimism about corporate earnings. A rise in oil prices that carried energy stocks higher added to the market’s turnaround.
The Dow Jones industrial average rose 31.22 points, or 0.3%, to end at 11,134.77. The Standard & Poor’s 500 index advanced 5.18 points, or 0.4%, to finish at 1,272.52.
The Nasdaq composite index gained 11.93 points, or 0.6%, to close at 2,128.86.
“KLA-Tencor came out with some bullish comments, and that helped provide a lift for the semiconductor group which ... spread to other sectors, and by the end of the day, the market closed in the green,” said Michael Sheldon, chief market strategist at New York brokerage Spencer Clarke.
KLA-Tencor shares shot up 8.2%, or $3.23, to $42.56. Chip-equipment makers rose with it. Applied Materials advanced 35 cents to $16.14 and Lam Research jumped $2.10 to $44.60.
“You get a very economically cutting-edge type of company like that saying that orders are good -- therefore the economy is good, earnings are good,” said James Awad, who manages $1.3 billion as chairman of Awad Asset Management in New York.
Bond yields fell as the White House reduced its fiscal 2006 budget deficit forecast by $127 billion to $296 billion. Bond yields fall as their prices rise.
“To the extent that the U.S. Treasury will be issuing less debt is one less negative to worry about for the bond market,” said Gary Pollack, managing director at Deutsche Bank Private Wealth Management.
The benchmark 10-year Treasury slid to 5.10%, from 5.13% on Monday.
Deadly explosions on commuter trains in Mumbai stirred fears of terrorism and shook U.S.-traded shares of India-based companies. Overseas markets also retreated on the news: Britain’s FTSE 100 fell 0.7%, Germany’s DAX index lost 1.6%, and France’s CAC-40 tumbled by 1.4%. Japan’s Nikkei stock average, which closed before the blasts, slid 0.5%.
Tuesday’s finicky trading -- which followed an equally indecisive session Monday -- came as further evidence of Wall Street’s persistent confusion about the economy. Investors have become fearful that though rising interest rates were keeping inflation contained, they may be stunting economic growth and eating into corporate profits.
Analysts were nonetheless upbeat about second-quarter earnings, given the anticipated slowdown in economic growth during the latter half of this year.
“I think although earnings are going to be strong, they’re going to grow at a slower rate than over the last six months,” said Steve Neimeth, senior vice president and portfolio manager at AIG SunAmerica. “With interest rates and energy going higher and the consumer weakening, there may be risks to those higher estimates.”
In other market highlights:
* Rising oil prices added to the market’s anxiety as energy traders monitored developments in talks with Iran over its nuclear arms program and as they awaited the weekly update on U.S. reserves today. A barrel of light crude gained 55 cents to $74.16 in New York trading. Exxon Mobil shares added 94 cents, to $63.98.
* Alcoa reported earnings after the close of trading Monday. On Tuesday, it had its biggest drop since September 2005 after it said record profit wouldn’t be sustainable. The aluminum company’s profit and sales also fell short of analysts’ estimates. Alcoa shares fell $1.63, or 4.9%, to $31.78.
* Adding to negative sentiment about second-quarter earnings was biotech bellwether Genentech, whose shares fell in extended trading after the company’s results showed that growth in sales of its cancer drug Avastin trailed expectations. During the regular session, Genentech shares rose 33 cents to $84.06. Shares fell to $81.68 after the bell.
* Lucent Technologies, the telephone-equipment maker that Alcatel is buying, lost 15 cents to $2.19. The company had said late Monday that per-share profit declined to 2 cents on sales of $2.04 billion in the third quarter ended June 30 as demand from U.S. customers slid.
* Pepsi Bottling Group said earnings climbed to 61 cents a share in the three months ended June 17, helped by sales of Aquafina water and Lipton tea. Analysts projected 59 cents, according to Thomson Financial. Pepsi Bottling shares rose $1.61 to $33.96.
* Chicago Mercantile Exchange Holdings tumbled $7.86 to $480.64 after its biggest shareholder, Marsico Capital Management, sold stock.
