Stocks gain on Fed hopes
Stocks advanced Monday despite record oil prices as investors speculated that the Federal Reserve would cut interest rates this week to boost the slow economy and help the troubled credit markets recover.
The Fed begins a two-day meeting today, and the consensus in the market is that the central bank will reduce its key short-term interest rate Wednesday. The Fed lowered the rate by half a point in September, the first such reduction in four years, after the credit markets seized up and posed the threat of recession.
But with energy prices soaring to new records, inflation risk -- which tends to be higher when rates are low -- may give policymakers some pause. Crude oil futures soared above $93 a barrel for the first time on the New York Mercantile Exchange on Monday after a storm led Mexico’s state oil company to suspend about a fifth of its production.
Scott Wren, equity strategist for A.G. Edwards, said the Fed remained concerned about inflation but was likely to lower the benchmark rate by a quarter-point due to overriding credit worries.
“It’s kind of a psychological sort of move,” Wren said. A quarter-point decrease “isn’t going to ease the credit crunch. But it’ll give the Fed a little more time to figure out what’s going on with the economy.”
The Dow Jones industrial average rose 63.56 points, or 0.5%, to 13,870.26, while the Standard & Poor’s 500 index rose 5.70 points, or 0.4%, to 1,540.98.
The Russell 2,000 index of smaller-company stocks edged up 0.33 of a point to 821.72.
The Nasdaq composite closed at a six-year high, rising 13.25 points, or 0.5%, to 2,817.44. It got a boost from tech issues including Google, up $4.63 to a record $679.23; Cisco Systems, up 51 cents to $32.41; and Priceline.com, up $4.94 to $91.18.
But Yahoo slumped $1.84, or 5.5%, to $31.79. Traders said the stock was hit by profit-taking after soaring 16% in the previous five sessions.
Microsoft eased 46 cents, or 1.3%, to $34.57 after rocketing 9.5% on Friday on the heels of the company’s bullish third-quarter profit report.
Advancing issues outnumbered decliners by about 4 to 3 on the New York Stock Exchange in relatively light trading.
The Treasury market was mixed. The benchmark 10-year note’s yield slipped to 4.38% from 4.40% late Friday.
The dollar was mixed against rival currencies while gold prices rose to 27-year highs.
Oil moved further into record territory. Crude futures for December delivery rose $1.67 to $93.53 a barrel in New York after rising as high as $93.80.
Rising oil and metal prices helped boost the stocks of raw-material producers 1.2% on average, the most among 10 industries in the S&P; 500.
Exxon Mobil and Alcoa were among the biggest gainers in the Dow. Alcoa rose $1.08, or 2.7%, to $40.43, and Exxon Mobil rose $1.40 to $93.61.
Freeport-McMoRan Copper & Gold, the second-biggest copper miner, added $1.01 to $117.86.
Financial stocks were mixed after surging Friday, when Countrywide Financial reported a large third-quarter loss but said it would return to profitability in 2008.
Countrywide slid 47 cents to $16.83, JPMorgan Chase dropped 65 cents to $46.67, and Bear Stearns was off $1.67 to $114.54, but Goldman Sachs jumped $7.89 to a record $243.81.
Merrill Lynch gained $1.33, or 2%, to $67.42 as investors awaited the fate of Chief Executive Stan O’Neal, who was reportedly close to resigning in the wake of the biggest quarterly loss in the firm’s 93-year history.
U.S.-traded shares of UBS fell 58 cents, or 1.1%, to $53.25. The Swiss financial services giant said the U.S. housing and mortgage markets could take a toll on its fourth-quarter profit.
RadioShack rose 80 cents, or 4.1%, to $20.42. The electronics retailer swung to a third-quarter profit despite lower revenue by cutting costs and selling more items with high profit margins.
Office Depot postponed its third-quarter earnings report to review its accounting for payments from suppliers. The announcement prompted three analysts to downgrade the retailer’s stock, which sank $2.86, or 14%, to $17.43.
In other market highlights:
Kellogg fell $1.33, or 2.4%, to $53.11 after the cereal maker issued a 2008 profit forecast that fell short of analysts’ estimates.
Morton’s Restaurant Group tumbled $3.01, or 17%, to $14.20. The steakhouse operator’s third-quarter loss widened, and the company said its fourth-quarter profit would miss estimates.
Deckers Outdoor, a Goleta, Calif.-based footwear and apparel company, climbed $1.60 to a record $145.80. The stock soared 27% on Friday after the company’s third-quarter profit report beat expectations.
Asian stock markets continued their record run. The Hang Seng index in Hong Kong shot up 3.9% to a record, lifting its year-to-date gain to 58%. South Korea’s market also hit a record high, rising 1.7%.
Elsewhere overseas, key share indexes climbed 1.2% in Japan, 0.7% in Britain, 0.8% in Germany and 0.7% in France.
