Stocks rebound as oil futures surge
Wall Street rebounded Tuesday, rising moderately as crude oil surged more than $2 a barrel and triggered a rally among energy producers. Investors regained their optimism about corporate profits after a series of positive earnings reports.
Energy prices jumped after Energy Secretary Samuel Bodman said the U.S. would double the size of the nation’s Strategic Petroleum Reserve. Prices were already rising as a cold snap in the Northeast raised the prospect of higher demand for heating fuel in the region.
Exxon Mobil led blue chips and was among the Dow Jones industrials’ biggest gainers, while fellow refiners ConocoPhillips and Chevron also surged during the session.
The advance in oil stocks helped the Dow recover from an 88-point decline Monday, its biggest drop in two months and a reaction to investor uneasiness about earnings.
The markets also got a lift Tuesday from robust earnings reports from United Technologies and Texas Instruments. This helped offset a warning from telecommunications equipment maker Alcatel-Lucent that it would not post a profit during the fourth quarter because of a steep decline in sales.
“Earnings are not coming in all that bad,” said Brian Gendreau, an investment strategist at ING Investment Management. “There is an absence of any real bad news, leading indicators are up and companies are not falling off the table. That’s consistent with the modest rise in the Dow.”
The Dow rose 56.64 points, or 0.5%, to 12,533.80.
Broader stock indicators also advanced. The Standard & Poor’s 500 index was up 5.04 points, or 0.4%, at 1,427.99, and the Nasdaq composite index added 0.34 of a point, or 0.01%, to 2,431.41.
The Russell 2,000 index of smaller stocks gained 7.42 points, or 1%, to 785.38.
Bond yields rose as investors struggled to digest a new load of securities hitting the market and braced for more supply later in the week. The yield on the benchmark 10-year U.S. Treasury note rose to 4.81% from 4.76% on Monday.
The sale of $8 billion worth of new 20-year Treasury Inflation-Protected Securities (TIPS) went well, but it was only the first of this week’s three auctions, all of which have been weighing on Treasury prices.
Traders also were making room for the Treasury’s auction of $20 billion in two-year notes today and $13 billion in five-year debt Thursday.
The TIPS were sold at a bid-to-cover ratio, an indication of demand, of 2.05, compared with 1.48 in a January 2006 TIPS auction. The proportion of indirect bidders, which include foreign central banks, was 58.7%, compared with 56.1% in the January 2006 auction.
In economic news, the Richmond Fed Survey showed a slip in its manufacturing index this month. Meanwhile, the Conference Board said U.S. economic activity was set to increase slightly in the coming months.
Bill Strazzullo, chief market strategist at Bell Curve Trading, believes the stock market may be at its peak for the year. He believes stocks will pull back as it becomes increasingly likely that the Federal Reserve won’t cut interest rates.
“We’re in a sweet spot right now where everything is OK, and there’s a little upside left. But there’s also a correction out there, considering the kind of advance the market has undergone,” he said.
In other market highlights:
* Crude oil futures rose $2.47 a barrel to $55.04 on the New York Mercantile Exchange, giving oil companies a boost. Exxon Mobil rose $1.59 to $74.49. ConocoPhillips was up $1.59 to $64.97 and Chevron increased $1.34 to $72.88.
* Alcatel-Lucent fell $1.04, or 7.3%, to $13.15, after the company said it would post a loss for the first full quarter since combining in last year’s $11.6-billion deal between France’s Alcatel and Lucent of the U.S. The company blamed integration costs and weaker sales because of consolidation among its customers.
Rival Tellabs fell 7 cents to $9.95 after reporting that a plunge in sales caused profit to fall 68%.
* Technology stocks were up after Texas Instruments reported a robust quarterly profit and was upgraded by several Wall Street firms. Shares rose $1.01, or 3.5%, to $29.60.
* United Technologies, which makes products as diverse as air conditioners and aircraft engines, reported that fourth-quarter profit rose 38%, which sent shares up $2.05, or 3.2%, to $66.14.
* Bank of America fell 33 cents to $53.32 despite the nation’s biggest retail bank saying growth in its loan business and its acquisition of credit-card issuer MBNA helped boost profit during the latest quarter. Rival Wachovia shares rose 38 cents to $56.65 after reporting better-than-expected results.
* DuPont posted higher quarterly earnings but investors were concerned about how higher raw materials costs would affect the chemical maker. Its stock fell 43 cents to $49.67.
