Oil price tumble boosts Wall Street
Stocks rose for the third straight session today as oil prices fell sharply and the government reported that the economy grew last quarter at a faster pace than previously estimated.
A rising dollar helped push crude oil prices down by more than 4 per barrel, the biggest single-session drop since March.
Investors have been concerned recently that rising oil and gasoline prices would dent consumer spending, which accounts for more than two-thirds of US economic activity.
The revised reading of first-quarter gross domestic product helped ease some worries over recession, which is defined by two straight quarters of decreasing GDP.
The Commerce Department said the economy grew at an annual rate of 0.9% – above the department’s earlier estimate of 0.6% and the fourth-quarter increase of 0.6%.
Meanwhile, MasterCard said consumers are continuing to reach into their wallets for plastic. The company’s shares jumped to a fresh high after the credit card processor said it still expects to see double-digit growth in net revenue this year.
While it said gross dollar growth in the US is slowing, purchasing is increasing in other parts of the world. Avoiding a big fall-off in consumer spending and strength elsewhere in the world could help the US economy avoid a serious downturn, some economists have reasoned.
The signs today of resilience in the US economy appeared welcome.
“The GDP news was pretty good. From our perspective, we’re not going to see a negative quarter of GDP, so earnings are going to improve,” said Scott Wren, senior equity strategist for Wachovia Securities.
The Dow Jones industrial average rose 52.19, or 0.41%, to 12,646.22. The Dow was up nearly 133 points at its high of the session.
Broader stock indicators also rose after trading mixed early in the session. The Standard & Poor’s 500 index advanced 7.42, or 0.53%, to 1,398.26, and the Nasdaq composite index rose 21.62, or 0.87%, to 2,508.32.
Government bonds fell as stocks rose. The 10-year Treasury note’s yield, which moves opposite its price, rose to 4.09% from 4.01% yesterday.
The dollar rose against other major currencies, while gold prices fell.
Mr Wren of Wachovia contends that stocks, which pulled back last week after posting sizable gains since the market’s mid-March lows, are going to need a hefty dose of good news to move well above their recent levels.
“I think we’re going to be stuck in this range,” he said. “To get out and above that level, I think you’re just going to have to see a lot of good news and some clarity.”
Jerry Webman, chief economist at Oppenheimer Funds, said that the recent increases in oil and gasoline are pressing consumers and that a drop in how financially well-off people feel could lead to a further slowdown in spending.
He added that the stock market’s gyrations and limited gains since last year have eroded some confidence.
“We’re about where we were at the beginning of 2007,” Mr Webman said. “I’m not pessimistic but I don’t think this trend since the middle of March is the beginning of the first leg of the next bull market.”
In corporate news, retailers offered insights into the effects of energy costs on consumers.
Costco Wholesale reported that its fiscal third-quarter profit rose 32% as customers flocked to its warehouse clubs to find bargains on food and toiletries. The stock fell 26 cents to 72.98, however, after Costco warned that Wall Street’s forecast for the company’s fourth quarter could be too optimistic.
Retailer Sears Holdings fell 3.22, or 3.6%, to 86.14 after posting a 56 million first-quarter loss that was worse than Wall Street forecast. The company said customers allocated more of their budgets to gasoline and food.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 1.23 billion shares compared with 1.21 billion shares traded Wednesday.
The Russell 2000 index of smaller companies rose 7.09, or 0.96%, to 745.55.
