Stocks Gain on Energy Trend
Stocks rallied for a second straight session Wednesday, pushing to four-month highs even as oil prices rebounded slightly after seven days of losses.
Crude oil futures rose 21 cents a barrel to $63.97 in New York trading, after the Department of Energy reported that crude inventories fell more than expected last week. Still, investors remained optimistic that the recent drop in oil prices would boost consumer spending and corporate profits.
Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors, was encouraged by a recent rise in tech and small-company stocks. “Those are signs from the stock market that investors are willing to take more risk,” he said.
The Dow rose 45.23 points, or 0.4%, to 11,543.32, reaching a new four-month high. The gain followed a jump of more than 100 points Tuesday based in part on optimism about oil prices and consumer spending.
Broader stock indicators also hit four-month highs. The Standard & Poor’s 500 index rose 4.96 points, or 0.4%, to 1,318.07, and the Nasdaq composite index gained 11.85 points, or 0.5%, to 2,227.67.
U.S. Treasury yields inched lower. Traders said the recent declines in oil prices helped assuage bond investors’ concerns about inflation, in spite of the uptick in prices Wednesday.
“Lower oil prices are forcing inflation down,” wrote Andrew Brenner, head of global fixed income at Hapoalim Securities in New York. “We continue to see good demand [for long-term bonds] from both the U.S. players and overseas.”
The yield on the 10-year T-note was 4.76%, down from 4.77% on Tuesday.
Johnson said that although investors were buying, many were looking to important economic data still to be made public this week. Today, the Commerce Department is scheduled to release its monthly retail sales report, which many on Wall Street view as an up-to-date snapshot of consumer spending. On Friday, the Labor Department will release the consumer price index, the key measure of inflation.
“I think to some extent most investors want to wait and see these numbers,” Johnson said, noting that investors were still trying to determine whether the economy would have a hard or soft landing.
Wall Street is also awaiting Wednesday’s meeting of the Federal Reserve to determine how the central bank sees the economy as well as its future stance toward inflation.
The Fed raised interest rates 17 straight times over two years before pausing last month.
Investors appeared confident Wednesday that the Fed wouldn’t rattle the markets next week, said Neil Massa, a stock trader at John Hancock Funds.
“The Fed-is-nearly-done rally should be over, but it has its moments where it keeps coming back,” he said, but added that he was encouraged by the broad-based nature of the recent rally.
The markets could face a setback, however, if data show that inflation is increasing. But in the meantime, favorable corporate profit news and sliding oil prices have emboldened investors.
In other market highlights:
* Lehman Bros. Holdings rose $2.04 to $70.06 after reporting better-than-expected fiscal third-quarter profit despite a slowdown in its investment banking business. A strong profit report Tuesday from Goldman Sachs Group led brokerage stocks higher.
Goldman rose $2.57 to $160.86. Bear Stearns, which will issue earnings today, rose $3.07 to $136.22. Morgan Stanley, which reports next week, climbed $1.38 to $69.73. Shares of Merrill Lynch added $1.64 to $75.32.
* Declines by Merck and Hewlett-Packard kept the Dow average from rising further.
Merck slid $1.06 to $41.09 on news that the drug maker’s experimental painkiller, Arcoxia, might carry the same risk of heart attack and stroke as Vioxx.
Hewlett-Packard fell 55 cents to $36.37, a day after California Atty. Gen. Bill Lockyer said he had “enough evidence to indict” people at the company for snooping in phone records.
* New York Times Co. rose 87 cents to $23.15 after the newspaper publisher said it would sell its nine television stations.
* Gap gained 40 cents to $17.48 after Lehman upgraded the retailer’s stock to “overweight.”
