Stocks rise a second day
Wall Street gained for a second straight session Tuesday, although investors had trouble making up their minds about the Federal Reserve’s latest statement on interest rates and the economy.
Today’s trading could be key in terms of building confidence that the market’s summer swoon has run its course: If major indexes rally today, it would be the first time in more than three weeks that stocks have risen for three consecutive sessions.
The market was modestly higher at midday Tuesday, building on Monday’s big rebound, when Fed policymakers concluded their midsummer meeting.
As expected, the Fed held its benchmark short-term interest rate steady at 5.25%. But the central bank, in its post-meeting statement, disappointed some investors by continuing to worry more about inflation pressures than the possibility that the economy could be hurt by the housing sector’s spreading woes.
The Dow Jones industrial average was up about 50 points before the Fed’s announcement. The index quickly fell to a loss of 120 points on the day, then rallied back, climbing to a gain of as much as 140 points before retreating again.
The Dow closed up 35.52 points, or 0.3%, to 13,504.30 after surging 286 points Monday.
Broader indexes also rallied, and winners topped losers by about 4 to 3 on the New York Stock Exchange.
The Standard & Poor’s 500 index rose 9.04 points, or 0.6%, to 1,476.71. The Nasdaq composite was up 14.27 points, or 0.6%, to 2,561.60.
Since spring, rising mortgage delinquencies have fueled a vicious sell-off in high-risk mortgage-backed securities and caused investors also to balk at buying other dicey securities, such as junk bonds.
The Fed nodded to Wall Street’s summer turmoil, saying that “financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing.”
Nevertheless, policymakers said, “the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy.”
Some analysts said the Fed helped the stock market’s mood by stressing the positives about the economic backdrop.
“The Fed’s saying there’s no reason to panic,” said Robert Carey, chief investment officer at First Trust Portfolios in Lisle, Ill.
“The economy is healthy; corporate earnings shouldn’t suffer; housing is not so bad that it is going to derail the rest of the economy,” said Bill Fries, managing director of Thornburg Investment Management in Santa Fe, N.M.
The market’s strength for a second straight session helped encourage bargain hunters, analysts said. Stocks held up despite more signs that mortgage lender failures would continue to rise.
One encouraging note: Junk bond yields slipped to their lowest level in nearly two weeks. The yield on an index of 100 junk bonds tracked by KDP Investment Advisors fell to 8.50% from 8.58% on Monday.
By contrast, Treasury bond yields rose as the recent rush into relatively safe securities abated. The 10-year T-note ended at 4.77%, up from 4.74% on Monday.
In other trading, crude oil prices inched up after diving $3.42 a barrel Monday. Near-term crude futures added 36 cents to $72.42 in New York.
Among the day’s market highlights:
* Many battered financial shares rallied for a second day. Bear Stearns rose $3.08 to $116.89, Countrywide Financial added 60 cents to $27.35 and IndyMac Bancorp gained $1.36 to $21.39.
Goldman Sachs denied rumors that it was liquidating its giant Global Alpha hedge fund. Goldman rose $3.46 to $191.25 after falling as low as $185.39.
But some mortgage lenders’ stocks continued to sink. Fremont General slid 84 cents to $4.44 and NovaStar Financial plunged $1.68 to $5.10.
Also, La Jolla-based Imperial Capital plummeted $6.30 to $31 after the company, a lender in the commercial real estate market, reported second-quarter earnings that fell short of expectations as competition squeezed loan rates.
* Home builders’ shares continued to rebound. Lennar jumped $2.13 to $34.49 and Pulte Homes added $1.44 to $20.38.
Los Angeles-based KB Home rose $1.34 to $33.06. Late in the session, KB said it paid down $650 million in debt in late July to strengthen its balance sheet.
* Utility stocks gained. PG&E;, parent of Pacific Gas & Electric, rose $1.20 to $46.36 after saying second-quarter profit jumped 16%.
* Santa Barbara-based Mentor, which makes breast implants, rocketed $6.88 to $47.87 after second-quarter earnings beat expectations.
* DreamWorks Animation tumbled $2.83 to $30.14 after billionaire Paul Allen said he would sell most of his stake in the firm.
* In foreign trading, the Shanghai composite stock index rose 0.5% to a record 4,651.22, bringing its gain this year to 74%.
