Stocks Surge, Boosting Hopes of Lasting Gains
Stocks posted solid gains Wednesday, raising hope among some investors that Wall Street is staging a sustainable recovery from the sharp global sell-off that struck late last month.
Financial powerhouse Morgan Stanley and package shipper FedEx sparked the rally with impressive earnings reports, which some saw as a sign that corporate profits could keep growing despite rising interest rates. FedEx in particular is considered a bellwether of business spending.
“I never thought [the sell-off] was anything more than just turbulence,” said Brian Wesbury, chief economist at First Trust Advisors in Lisle, Ill. “There’s no fundamental problem with the market.”
The Dow Jones industrial average climbed 104.62 points, or 1%, to 11,079.46. It was the third triple-digit gain in the blue-chip average in the last six trading sessions.
Gains in technology stocks powered the Nasdaq composite index up 34.14 points, or 1.6%, to 2,141.20. The Standard & Poor’s 500 index gained 12.08 points, or 1%, to 1,252.20.
Small stocks, which had been hammered in the sell-off, came back and sent the Russell 2,000 index up 13.17 points, or 1.9%, to 690.67.
The market’s recent advance is a sharp turnaround from the last few weeks, when financial markets were pounded by fears that inflationary pressures would prompt central banks around the world to push up interest rates, potentially strangling global economic growth.
Some market experts cautioned that uncertainty remained high and that stocks were unlikely to launch into a sustained rally anytime soon. It is widely assumed that the Federal Reserve next week will raise its benchmark interest rate from 5% to 5.25%, and probably approve at least one or two additional quarter-point hikes in coming months to keep inflation in check.
“What we’re going through is bouncing around in a tight trading range [and] this is one of the up days,” said Art Hogan, chief market strategist at Jefferies & Co.
Hogan believes that the gains were driven in part by fear among money managers of being left out of any rally.
“The general sense is that if there is a bottom for this recent sell-off people don’t want to miss it,” he said. “It doesn’t take much to spook people back in.”
Stocks also were helped Wednesday by a dearth of economic news and by the lack of public comments by Federal Reserve officials. Repeated warnings in the last two weeks by a stream of Fed governors have weighed on stocks by reinforcing inflation fears.
“They’ve rattled the saber a little too much,” said Bob Bissell, president of Wells Capital Management in Los Angeles.
The profit reports from FedEx and Morgan Stanley soothed the nerves of investors, who have been worried about the effect of rising interest rates on the global economy.
FedEx said that fiscal fourth-quarter profit jumped a better-than-expected 27%, thanks in part to strong performance in Europe and Asia. The company expressed optimism about the global economic environment in the next year, and its shares climbed $5.54, or 5.1%, to $113.86.
Shares of Morgan Stanley popped up $2.46, or 4.3%, to $59.48 after fiscal second-quarter earnings at the New York-based investment bank more than doubled, trouncing analyst estimates. The gains were powered by a 76% jump in trading revenue and a 44% boost in investment-banking revenue.
Bond yields were little changed, with the 10-year U.S. Treasury note at 5.15%, unchanged from Tuesday. Wesbury said he expected the Fed to ratchet interest rates up to 6% before stopping. Nevertheless, he said, interest rates remain modest by historical standards, and he believes that stocks are about 30% undervalued based on corporate earnings growth.
With Wednesday’s advance, the Dow Jones average is up 3.4% on the year and the S&P; 500 is up 0.3%. But Nasdaq remains in the red, down 2.9% since Jan. 1. The SOX index of semiconductor makers is down 5% year to date.
In other market highlights:
* Oil prices headed back over $70 a barrel, with crude futures rising 99 cents to $70.33 in New York trading. Shares in energy companies rose along with oil prices. Exxon Mobil added 67 cents to $58.06, and Chevron picked up 77 cents to $58.28, while Westwood -based Occidental Petroleum gained $1.52 to $93.85.
* Among technology issues, Hewlett-Packard advanced 88 cents to $33.74, Intel gained 25 cents to $18.40 and Microsoft climbed 52 cents to $23.08. Apple Computer rose 39 cents to $57.86 and Dell picked up 41 cents to $24.08.
* Home builders posted solid gains but still have far to go to erase losses this year amid a downturn in new construction. KB Home of Westwood added $1.71 to $45.79, Pulte Homes gained $1.47 to $28.70 and Toll Bros. climbed 90 cents to $26.95.
* Gold and commodity stocks rose on higher prices for metals. Gold mining company Freeport-McMoRan Copper & Gold advanced $1.79 to $49.23, and copper miner Phelps Dodge gained $3.15 to $80.91. Gold futures rose $10.60 an ounce to $587.50.
* In financial services, Citigroup added 36 cents to $48.37 and Goldman Sachs climbed $4.57 to $149.83. Calabasas-based mortgage lender Countrywide Financial gained 49 cents to $37.10.
Bloomberg News was used in compiling this report.
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In the black
Most key stock indexes are in positive territory for the year, but losses in tech shares have weighed on Nasdaq and an index of semiconductor shares.
*--* Pctg. change Index Wed. YTD Dow transport +2.9% +13.6% Dow industrials +1.0 +3.4 S&P; 600 small-cap +1.8 +3.1 NYSE composite +1.2 +2.6 Russell 2,000 +1.9 +2.6 S&P; 500 +1.0 +0.3 S&P; 400 mid-cap +1.8 +0.1 Nasdaq composite +1.6 -2.9 SOX (chip stocks) +2.1 -5.0
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Source: Bloomberg News
