Stocks Advance as Oil, Treasury Yields Fall
Wall Street rebounded moderately Friday from two losing sessions as oil prices dropped further and investors mostly shrugged off another warning from a home builder about declining demand. The major indexes ended the week with losses.
Investors apparently took in stride Lennar’s announcement that it was lowering its third-quarter profit forecast, joining several rivals in pointing to lackluster demand in a slowing housing market. Warnings earlier in the week from companies such as KB Home, Beazer Homes USA and Hovnanian Enterprises left Wall Street unnerved at the prospect of a sharp economic slowdown.
With relatively little in the way of market-moving economic news to chew on, investors got their biggest clue about the economy from the home builders.
A few speeches from Federal Reserve officials also kept Wall Street guessing about the central bank’s future policies.
“It’s the third warning in three days from the home-building industry, and it’s a sign that the damage on the rest of the economy is all still in front of us,” said Stuart Schweitzer, global markets strategist at JPMorgan Asset and Wealth Management.
The Dow Jones industrial average rose 60.67 points, or 0.5%, to 11,392.11.
Broader stock indicators extended their gains. The Standard & Poor’s 500 index was up 4.90 points, or 0.4%, at 1,298.92, and the Nasdaq composite index rose 10.50 points, or 0.5%, to 2,165.79.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange. The Russell 2,000 index of smaller companies rose 2.07 points, or 0.3%, to 708.54.
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.77% from 4.79% on Thursday.
The major indexes ended the erratic, holiday-shortened week with losses amid the dismal scenario of an economic slowdown accompanied by higher inflation. Investors’ disgruntlement with the home builders’ warnings was compounded by government data showing a jump in wage inflation during the second quarter.
For the week, the Dow lost 0.6%, the S&P; shed 0.9% and Nasdaq dropped 1.3%.
But Friday, Wall Street, which has been hoping the Fed will temper its efforts to hold back inflation should the economy show further signs of slowing, appeared to regard comments from Cleveland Fed President Sandra Pianalto as acceptable.
She was quoted by news services Friday as saying it was crucial that the Fed “anchor inflation expectations in order to best promote sustainable economic growth.”
Pianalto’s speech followed remarks from San Francisco Fed President Janet Yellen on Thursday that some on Wall Street saw as indicating that further interest rate hikes were likely.
Many investors are wary of more rate hikes, contending that the Fed’s string of 17 straight increases has already slowed the economy too quickly. The Fed, which left rates unchanged at its last meeting, plans to meet again Sept. 20.
Schweitzer predicted that a cooling economy could lead to a rate cut in the first half of next year.
“I think the market is in a tug of war between the potential benefits and problems from a slowdown in the economy,” he said.
Falling oil prices also buoyed stocks. The commodity, which had recently been selling above $70 a barrel, has fallen in recent days as inventory figures showed increases and as tensions with Iran over its nuclear ambitions eased.
The end-of-summer driving period coupled with a lighter-than-expected hurricane season have also helped lower prices. Crude oil futures fell $1.07 to $66.25 a barrel in New York trading.
In other market highlights:
* Lennar fell 54 cents to $42.71 after it said it expected to earn $1.25 to $1.35 a share for the third quarter, well below the $2.06 the company earned in the same quarter last year.
Wall Street had been expecting $1.81 a share. KB Home lost 5 cents to $40.35, Beazer declined 9 cents to $37.24 and Hovnanian shed 92 cents, or 3.4%, to $26.17.
* AirTran Holdings, which operates low-fare carrier AirTran Airways, dropped $1.19 to $9.48 after the airline cut its third-quarter revenue forecast amid falling demand.
* Equifax picked up $3.92, to $36.34, after the credit-reporting and marketing company said its full-year earnings would exceed $2 a share. It had forecast a profit of $1.90 to $1.99 a share.
* Overseas, Britain’s FTSE 100 was up 0.4%, Germany’s DAX index was up 0.4% and France’s CAC-40 closed up 0.3%.
