Fed Official’s Remarks Boost Stocks
Stocks rose smartly Monday after Dallas Federal Reserve Bank President Richard Fisher suggested that inflation would be damped by a slowing economy and said that although the housing and auto sectors were economic weak points, the rest of the U.S. economy was doing “extremely well.”
The Standard and Poor’s 500 index closed at a new five-year high.
The bond market, however, seems convinced that an economic downturn -- and cuts in the Fed’s benchmark short-term interest rate -- are on the way. The yield on the 10-year Treasury note fell to 4.54% from 4.59% on Friday. The yield has plummeted since June and now stands at a seven-month low.
Fisher’s remarks pushed stocks higher in what had been a session of seesaw trading, with investors first bidding stocks higher on lower oil prices, then sending them lower on falling housing prices. Investors, alert to any sign of a sharp economic slowdown, have been especially skittish in recent sessions as data have shown a slowing housing market while bond yields and oil prices have fallen hard.
Although the steep and sudden falloff in bond yields, slowing housing and lower commodities prices seem to indicate that the economy will grow at a slower pace, not every investor believes the slowdown will be dramatic.
“The pace of growth could slow down, but that doesn’t mean the market is going to get killed,” said Philip S. Dow, managing director of equity strategy at RBC Dain Rauscher in Minneapolis. “I think it’s early to talk about a recession.”
The Dow Jones industrial average gained 67.71 points, or 0.6%, to 11,575.81.
The S&P; 500 index rose 11.59 points, or 0.9%, to 1,326.37, eclipsing the previous five-year high of 1,325.76 set in May.
The Nasdaq composite index rose 30.14 points, or 1.4%, to 2,249.07.
The Russell 2,000 index of smaller companies was up 8.46 points, or 1.2%, at 727.09.
Advancing issues led decliners by more than 2 to 1 in robust trading on the New York Stock Exchange. The technology, consumer discretionary and utilities sectors were the day’s biggest gainers.
Stocks bounced higher at the open Monday after oil prices fell to six-month lows when BP said it had permission to restart the eastern half of Alaska’s Prudhoe Bay oil field, which should expand oil inventories. Oil prices rose in the afternoon, with a barrel of light crude settling at $61.45, up 90 cents, on the New York Mercantile Exchange. The price of natural gas sagged, falling to a three-year low.
The market has been struggling with whether to cheer some of the signs that the economy is cooling -- such as lower commodities prices -- or whether to worry about the possibility of a recession. An unexpected decline last week in the Philadelphia Fed’s manufacturing conditions survey, which showed stalled growth, helped send the stock market lower Thursday and Friday and sent bonds sharply higher, biting into yields.
“I don’t think there’s any question we’re heading into a recessionary environment,” said John O’Donoghue, co-head of equities at Cowen & Co. “The question is how severe it’s going to be.”
Early in the session, stocks fell after the National Assn. of Realtors reported that the median home price for August was $225,000, down 1.7% from a year earlier -- the first such decline in more than a decade.
Fisher’s comments, made after a speech in Monterrey, Mexico, came at an opportune time: With the third quarter ending this week, investors are eager for any boost to the stock market’s performance. The S&P; 500 index is up 6.2% year-to-date.
“The recent tempering of U.S. economic growth to a more sustainable rate ... should act to lower the inflation rate over time,” Fisher said. Less inflation means less likelihood that the Fed will continue to raise interest rates.
In other market highlights:
* Tobacco stocks fell after a federal judge in New York granted class-action status to millions of “light cigarette” smokers for a potential $200-billion lawsuit against tobacco companies. Altria Group fell $5.26, or 6.4%, to $77.06; Reynolds American fell $2.27 to $59.75; and Loews fell 20 cents to $37.80.
* Chiquita Brands International fell $2.20, or 14%, to $13.53 after the company said it would suspend dividend payments and consider selling its shipping business to cut debt. It also said difficult market conditions, including problems with E. coli in spinach, had hurt third-quarter results.
* Dell rose 72 cents to $22.16 after the computer maker said it planned to hire an additional 500 engineers to work in product development operations.
* Oil companies were mixed as oil prices bounced higher; stocks in the sector have been sliding since late August. Exxon Mobil rose 15 cents to $65.06, BP fell 14 cents to $65.06 and Chevron rose 24 cents to $62.18.
* Overseas, Japan’s Nikkei stock average was flat. Britain’s FTSE 100 lost 0.4%, Germany’s DAX index gained 0.3% and France’s CAC-40 rose 0.1%.
