Optimism Lifts Blue Chips
Wall Street’s 2006 rally got back on track Wednesday, as optimism about the economy stoked buying of industrial stocks.
Gains in shares of companies including Caterpillar and 3M boosted the Dow Jones industrial average 81.96 points, or 0.7%, to 11,317.43, its highest close since May 2001.
A jump in major drug stocks also helped the market.
The Standard & Poor’s 500 index gained 7.81 points, or 0.6%, to 1,305.04, just below the five-year high of 1,307.25 reached on Friday.
Winners topped losers by more than 2 to 1 on the New York Stock Exchange.
The technology-dominated Nasdaq composite lagged behind blue chip indexes, adding 9.12 points, or 0.4%, to 2,303.35. It was held back by a slide in Microsoft shares after the company said the release of its updated Windows software program would be delayed.
The stock market had struggled Monday and Tuesday amid concerns about interest rates. The Federal Reserve meets next week and is expected to raise its benchmark short-term rate to 4.75% from 4.50%.
Treasury bond yields have mostly been rising since late January on fears that the Fed will tighten credit beyond the 5% mark on its key rate. That is the level where many economists expect the Fed to stop.
Despite higher bond yields, the stock market has continued to advance this year. The Dow is up 5.6% year to date.
Investors appear to be more enthused about the economy’s strength and what that might mean for corporate earnings than they are afraid of rising interest rates, some analysts say.
“Earnings will grow faster than where interest rates are going right now,” said J.J. Burns, head of money management firm J.J. Burns & Co. in Melville, N.Y.
Heavy-machinery maker Caterpillar jumped $1.90 to $76.21 on Wednesday after the company’s chief executive said he was “optimistic about the future of U.S. manufacturing” and called for Congress to avoid protectionist sentiment in dealing with trade issues. Caterpillar is a major exporter.
Among other industrial issues in the Dow, 3M rose $1.14 to $76.07 and United Technologies was up 69 cents to $59.13.
An upbeat mood about the global economy also helped push some European stock market indexes to multiyear highs. Germany’s DAX index rose 0.4% to 5,932.31, its highest level since 2001. France’s CAC-40 gained 0.9% to reach a five-year high of 5,194.78.
The Treasury bond market was relatively quiet. The 10-year T-note yield ended at 4.70%, down from 4.72% on Tuesday.
In commodities trading, near-term oil futures fell 57 cents to $61.77 a barrel after an Energy Department report indicated that U.S. crude inventories declined slightly last week but remained above five-year averages for this date. Gasoline futures prices also fell.
Silver prices pulled back after reaching 22-year highs Tuesday. Near-term silver futures dipped 7 cents to $10.45 an ounce.
Among the day’s highlights:
* In the industrial sector, DaimlerChrysler jumped $1.55 to $56.86, Illinois Tool Works rallied $2.82 to $98.42 and U.S. Steel gained $2.50 to $59.86.
Pasadena-based Ameron, a maker of industrial and construction products, jumped $1.64 to $60 after reporting quarterly net income of 41 cents a share, compared with 6 cents a year earlier.
* Transportation issues were strong, pushing the Dow transports index up 1.2% to a record 4,614.94. AMR, parent of American Airlines, rose $1.14 to $28.88 and railroad Union Pacific was up $1.30 to $92.15.
FedEx jumped $1.22 to $114.44 after reporting a 35% increase in its latest quarterly earnings.
* Drug giant Bristol-Myers Squibb surged $2.41, or 11%, to $25.24, its biggest one-day percentage gain in six years. The company late Tuesday said it had reached a deal in a legal dispute, helping it to possibly keep patent protection on a key blood-thinning drug through 2011.
Other pharmaceutical issues also gained. Eli Lilly rose $1.18 to $58.49 and AstraZeneca rallied 81 cents to $51.20.
* Shares of food and tobacco company Altria Group added 83 cents to $73.29 after analysts at brokerage UBS raised their price target on the stock to $81 from $77.50.
* Morgan Stanley gained $1.53 to $61.94. The brokerage said fiscal first-quarter net income rose 17% on revenue from buying and selling stocks and fixed-income securities. Per-share profit was $1.54 in the three months ended Feb. 28, exceeding the highest analyst estimate in a survey by Thomson Financial.
Among other brokerages, Lehman Bros. jumped $2.62 to $144.61 and Goldman Sachs was up $2.42 to $151.82.
* On the downside, Microsoft fell 59 cents, or 2.1%, to $27.15 for the worst performance in the Dow average. The Vista version of the Windows operating system, which runs 90% of the world’s personal computers, will be released in January for consumers.
It is already two years late, and Microsoft Chief Executive Steve Ballmer said last month that the release was on target for this year.
