Shares Rise on Optimism
U.S. stocks on Wednesday staged a broad rally, sending the main Nasdaq index to a five-year high, on confidence that corporate profit growth will persist in the face of rising interest rates.
The market bounced back after declining Tuesday, following the Federal Reserve’s 15th straight interest rate increase and policymakers’ suggestion that short-term rates would keep moving higher.
In the bond market Treasury yields continued to climb, reaching fresh multiyear highs.
But stock investors are “looking forward to those underlying earnings and the strength of the economy, the resiliency we’ve seen,” said Noel Lamb, chief investment officer of Russell Investment Group in Tacoma, Wash. “That’s why, I think, we’ve seen the rebound.”
The Dow Jones industrial average gained 61.16 points, or 0.6%, to 11,215.70, after sliding 95.57 points Tuesday.
Broader market indexes rebounded more sharply.
The technology-heavy Nasdaq composite rose 33.32 points, or 1.4%, to 2,337.78, its highest close since February 2001. That surpassed the recent peak of 2,331 reached Jan. 11.
The Standard & Poor’s 500 rose 9.66 points, or 0.8%, to 1,302.89.
The Russell 2,000 small-stock index surged 12.90 points, or 1.7%, to a record 764.17.
Winners topped losers by more than 2 to 1 on the New York Stock Exchange and on Nasdaq.
“I’m feeling reasonably constructive about the markets,” said Leo Grohowski, chief investment officer at U.S. Trust in New York. “Earnings look solid. First-half earnings could likely continue a trend” of beating analysts’ estimates, he said.
Stocks rose despite higher bond yields. The bellwether 10-year Treasury note yield ended at 4.80%, a 21-month high and up from 4.78% on Tuesday.
The government sold $14 billion of new five-year notes at a yield of 4.78%, the highest in five years. Traders described demand as disappointing.
There is “not a lot of interest in owning anything from zero- to five-year maturities because we don’t have a sense of when the Fed is going to stop,” said Rick Klingman, a Treasury trader at ABN Amro in New York.
The Fed on Tuesday raised its key short-term rate to 4.75% from 4.5% and said “some further policy firming may be needed.”
The good news for stocks was that the Fed sounded upbeat on the economy, analysts said.
Stocks may be benefiting as some investors shun bonds, uncertain of when the Fed will stop tightening credit, analysts said.
What’s more, with the first quarter ending Friday, some portfolio managers may be adding to investments that have done well this year -- particularly smaller stocks.
The Russell 2,000 index is up 13.5% this year, compared with the Dow’s 4.6% gain.
Investors ignored another rise in oil prices Wednesday. Near-term crude futures added 38 cents to $66.45 a barrel, a seven-week high, after government data showed a dive in U.S. gasoline inventories last week.
Many oil refineries perform maintenance at this time of year to prepare for the warm-weather driving season. That partly explains declining inventories, experts said.
In other trading, silver prices jumped above $11 an ounce for the first time since 1983, adding to the metal’s recent rally. Near-term silver futures leapt nearly 25 cents to $11.07 an ounce.
Gold futures rose $6.40 to $573 an ounce, a 25-year high.
Investors worldwide have been buying precious metals and other commodities over the last two years in part to better diversify stock and bond portfolios, analysts say. Demand from China and other fast-growing economies also has boosted prices.
Among the day’s highlights:
* Tech stocks were hot as some investors hunted for companies that could benefit from continued economic growth. Apple Computer soared $3.62 to $62.33, Texas Instruments jumped $1.04 to $31.99 and Seagate Technology was up $1.41 to $25.49.
In the Internet sector, Google rocketed $17.78 to $394.98, but the shares fell back in after-hours trading following the company’s announcement that it would directly sell 5.3 million new shares to investors.
* Qualcomm jumped $1.36 to $50.72. The San Diego-based wireless-tech company was rated “outperform” by investment firm Cowen & Co., which cited an expected growth of cellphone sales this year.
* Commodity-related stocks continued their 2006 rally. Potash surged $3.78 to $86.46, Deltic Timber shot up $3.55 to a record $59.20 and Glamis Gold rose $1.41 to $31.18.
* Many industrial stocks were strong. Reliance Steel soared $5.30 to a record $93.86, Textron rose $1.63 to $94.05 and 3M gained $1.26 to $77.56.
* Brokerage stocks rallied on hopes that this year’s market advance will continue. E-Trade jumped $1.23 to $26.80 and Lehman Bros. rose $1.59 to $143.92.
* Home builders were mixed as rising bond yields raised concerns about a further slowdown in home sales. KB Home dipped 23 cents to $66.74 and Centex lost 83 cents to $63.37. But Pulte Homes was up 60 cents to $39.79.
* Drug stocks, which have weakened in recent days, were mostly lower again. Novartis lost 25 cents to $55.18 and Pfizer was off 11 cents to $25.24.
