Cisco, oil push stocks higher
Wall Street logged another winning day Wednesday as a drop in oil prices and a better-than-expected profit report from technology bellwether Cisco Systems helped corral the market’s worries about the financial sector.
Oil extended its slide into a third day. Light, sweet crude settled down 59 cents at $118.58 a barrel on the New York Mercantile Exchange after the government reported a jump in domestic inventories; oil is now down about $30 from its record high of $147.27 reached July 11.
Cisco shares rose more than 5% after the networking equipment company late Tuesday posted earnings that narrowly topped Wall Street’s forecast. The report helped buoy sentiment and lifted the technology-laden Nasdaq composite index.
The buying came a day after Wall Street had a huge rally -- an advance that in early trading Wednesday looked as if it might not hold. Investors began the day fearing more industrywide write-downs of bad home loans after mortgage financier Freddie Mac reported a larger-than-expected second-quarter loss. But a reversal in oil prices, continuing a decline that propelled stocks sharply higher Tuesday, helped calm investors about the forces tugging at the economy.
The well-being of Freddie Mac and sister company Fannie Mae is a big concern on Wall Street as the government-chartered companies hold or back nearly half of all U.S. mortgage debt. The companies have lost billions of dollars from failed loans over the last year; the federal government has pledged to help both companies with larger credit lines or stock purchases if necessary.
Lincoln Anderson, chief economist at LPL Financial in Boston, said that although the troubles in the financial sector weren’t over, investors were somewhat emboldened by the slide in oil and signs of strength in the dollar.
“I think we’re getting into better territory,” he said. “I’ve been very much focused on the fall in oil prices as a necessary ingredient to avoid recession. To the extent that we’re getting that, that’s just great.”
The Dow Jones industrial average rose 40.30 points, or 0.3%, to 11,656.07, after having been down nearly 100 points early in the session. The gain brought the Dow’s two-day advance to about 370 points. The blue chips soared Tuesday on the drop in oil and in response to a reassuring statement from the Federal Reserve.
Broader stock indicators also advanced again. The Standard & Poor’s 500 index rose 4.31 points, or 0.3%, to 1,289.19, and the Nasdaq rose 28.54 points, or 1.2%, to 2,378.37.
Bonds slipped as more investors left the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 4.06% from 4.02% late Tuesday. The dollar rose to an eight-week high against the euro, which lost 0.005 cents to $1.542, while gold prices fell $3 to $875.60.
Investors showed enthusiasm for technology names. Cisco rose $1.28, or 5.7%, to $23.93 after its report. Microsoft rose 81 cents, or 3.1%, to $27.02.
But financials remained a weak spot. Freddie Mac fell $1.55, or 19%, to $6.49, while Fannie Mae fell $2, or 15%, to $11.60. Freddie Mac, which substantially increased its reserves for souring loans, lost about three times what Wall Street had expected.
Other financial stocks also fell as investors worried about the sector. Citigroup slipped 22 cents, or 1.1%, to $19.70, while Wachovia fell 65 cents, or 3.4%, to $18.41.
Even with the pullback in oil prices, investors appeared cautious about placing bets on companies that do best when consumers are in a mood to spend. Among consumer discretionary stocks, TJX, parent of the T.J. Maxx and Marshalls retail chains, fell 91 cents, or 2.6%, to $34.47.
Sprint Nextel fell $1.21, or 14%, to $7.34 after posting a second-quarter loss on severance and other costs.
