Oil Fuels Stocks’ Small Gain
Wall Street squeezed out a small gain Tuesday as traders got back to work from a three-day break to find oil prices retreating but little other data to guide them.
The major indexes, which all built on three-month highs, were again subject to low volume that isn’t expected to return to normal until later in the week. Investors were largely adjusting their positions while they await the Federal Reserve’s next meeting on interest rates, scheduled for Sept. 20.
With little economic news this week, investors will probably make few moves until they have more signals about the economy’s health. Recent reports, including housing and job claims, have indicated the economy is moderating enough to ward off future Fed rate hikes.
“We’re probably going to be within a tight trading range until we start to get some indication from companies about how the quarter is looking,” said Peter Schofield, a portfolio manager with Knott Capital. “There’s nothing clearly on the horizon, besides the Fed meeting, that could cause a big swing on the market.”
In the meantime, corporate news and oil prices are expected to be the main market drivers. Among the biggest gainers Tuesday were oil companies after the discovery of a major new oil source in the Gulf of Mexico by Chevron and its partners.
The Dow Jones industrial average added 5.13 points to 11,469.28, having changed direction several times during the session. The Dow rose 1.6% last week.
Broader stock indicators were slightly higher. The Standard & Poor’s 500 index was up 2.24 points, or 0.2%, at 1,313.25, and the Nasdaq composite index picked up 12.54 points, or 0.6%, to close at 2,205.70.
The Russell 2,000 index of smaller companies was up 5.94 points, or 0.8%, to 727.50.
Bond yields moved higher. The benchmark 10-year Treasury note, which hit a five-month low of 4.73% on Friday, climbed to 4.78%. Bond yields rise as their prices fall.
“It is profit taking. In our meetings what we have been hearing from traders is, how much richer can these bonds get,” said T.J. Marta, fixed income strategist at the Royal Bank of Canada Capital Markets in New York.
Oil prices, which fell below $70 a barrel last week, lent some support to stocks. Prices have weakened as Tropical Storm Ernesto missed the Gulf of Mexico, and the chances for a possible confrontation with Iran over its nuclear ambitions diminished.
The price of crude fell 58 cents to $68.60 a barrel on the New York Mercantile Exchange, skidding in part after Chevron announced a discovery it hopes will boost U.S. oil and gas reserves by as much as 50%. Chevron led the oil sector higher, rising $1.51, or 2.3%, to $66.34.
Chevron controls a 50% stake in the oil field. Partner Devon Energy rose $7.99, or 12.5%, to $72.14.
In other market highlights:
* Housing stocks, which have been hovering near 52-week lows, were mostly flat after a report indicated U.S. home prices rose in the second quarter but showed the biggest slowdown in three decades. The data were released by the Office of Federal Housing Enterprise Oversight, the agency that oversees mortgage finance companies Fannie Mae and Freddie Mac.
Hovnanian Enterprises rose 2 cents to $26.67, just off its yearly low of $24.79 and well below the $61.71 high. The homebuilder reports third-quarter results today.
Pulte Homes, the largest U.S. homebuilder by market value, declined 75 cents to $28.98. D.R. Horton, the third-biggest, lost 25 cents to $21.80.
* Altria Group, owner of cigarette maker Philip Morris, lost $1.18, or 1.4%, to $82.63 for the steepest drop in the Dow average. Tobacco stocks were downgraded to “neutral” from “overweight” by analysts at Credit Suisse, who cited their high price-earnings ratios, and regulatory and legal risks.
* Procter & Gamble lost 35 cents to $61.56. The largest consumer-products maker forecast first-quarter profit of 76 cents to 78 cents a share. The average estimate from analysts surveyed by Thomson Financial is 78 cents.
* Hershey fell $2.35 to $51.92. The biggest U.S. chocolate maker was cut to “neutral” from “overweight” by J.P. Morgan Securities Inc. analyst Pablo Zuanic. He said the company may not meet its annual sales forecast and may have lost market share.
* Investors were uneasy about media and entertainment company Viacom after it said Tom Freston had resigned as chief executive. Chairman Sumner Redstone said his company’s board ousted Freston because it wanted to see its share price trade higher and hoped the media conglomerate would be more aggressive about acquisitions. Viacom shares sank $2.08, or 5.6%, to $34.89.
* Copper producer Phelps Dodge announced it would cancel a planned $17.4-billion combination with Inco after it appeared Inco shareholders would reject the deal. Phelps Dodge added $2.73 to $93.48. The company said it received a $125-million termination fee from Inco, whose shares fell 58 cents to $77.12.
* Caterpillar advanced $2.41, or 3.6%, to $69.68 after the heavy equipment maker said it planned to raise prices in 2007.
*
Bloomberg News and Reuters were used in compiling this report.
