Wall Street rebounds from recent losses
Wall Street finished moderately higher in fitful trading today as investors, still nervous about the economy, decided to buy back into a stock market pummelled by three straight days of losses.
With the market having largely priced in the possibility of a recession, many believe there are plenty of valuable stocks at cheap prices. Before Thursday, the Dow Jones industrial average had fallen this week by 543 points, or 4.26%, giving up all of last week’s sharp gains.
Though the market ended up rising today, trading was extremely fickle due to a batch of gloomy data that included declining January sales at major retailers, a drop in December sales of pending homes, and a disappointing outlook from Internet networking supplier Cisco Systems Inc. The major indexes see-sawed throughout the day.
“We’re kind of trying to create a silk purse out of a sow’s ear here,” said Hugh Johnson, chief investment officer of Johnson Illington Advisors. “The earnings are lousy, the economic numbers are lousy.”
The Dow rose 46.90, or 0.38%, to 12,247.00 after trading down about 80 points and up about 130. The index remains more than 13% below its record close on October 9 2007 of 14,164.53.
Broader stock indicators also recovered some ground. The Standard & Poor’s 500 index rose 10.46, or 0.79%, to 1,336.91. The technology-heavy Nasdaq composite index rose 14.28, or 0.63%, to 2,293.03.
Government bonds fell. The 10-year Treasury note’s yield, which moves opposite its price, rose to 3.76% from 3.60% late Wednesday.
Investors may have been encouraged to buy back into stocks due to a rise in the dollar, whose decline over the past few months has contributed to worries about inflation and a possible drop in foreign interest in US investments.
Peter Cardillo, chief market economist at Avalon Partners, said the dollar’s advance followed remarks by European Central Bank chief Jean-Claude Trichet that the United States and Europe remain economically intertwined. This suggested to investors that strength in other countries can help stabilise the US during its rough patch. Fears of a global economic slowdown have been weighing on stocks around the world.
As expected today, the Bank of England lowered its key interest rate by a quarter percentage point to 5.25%, its second cut in three months, while the European Central Bank left its key rate unchanged at 4%.
Another argument for bargain hunting today was that the recent spate of negative economic data raises the likelihood of the Federal Reserve lowering interest rates again to spur growth. Atlanta Fed President Dennis Lockhart said the Fed’s “focus, religiously, is on the general economy, the real economy”.
Moreover, the stock market often portends economic declines, rather than the other way around.
“Stocks do worse during times of slow growth than they do during recession,” said Brian Gendreau, investment strategist for ING Investment Management. “If we’re in a shallow and short recession, for all anyone knows, we might be halfway through.”
The market’s indecisive movements throughout the day show, however, that it has not moved past the many worries swirling about personal spending, the crumpling housing market and deteriorating conditions in consumer credit.
Late Wednesday, Internet networking supplier Cisco Systems Inc. issued a 10% sales growth forecast for its current quarter that fell well below the 15% Wall Street projected. But Cisco finished up 30 cents at 23.38 dollars, after some investors saw the stock was undervalued.
And in a counterintuitive move, retail stocks – also regarded as cheap right now – rose even after the nation’s retailers logged their worst January in about 40 years. Wal-Mart Stores Inc. reported a 0.5% rise in January same-store sales, or sales at stores open for at least a year, while Target Corp., Gap Inc., Limited Brands Inc. and AnnTaylor Stores Corp. each said their sales fell.
Not all news about retailing was bad – J.C. Penney Co. raised its earnings forecast for the last three months of 2007. Its stock jumped 3.72 dollars, or 8.5%, to 47.44 dollars.
But on top of the mostly weak retail reports, the Labour Department reported that jobless claims fell last week by 22,000, a smaller decline than many economists predicted, and the National Association of Realtors said pending sales of existing homes fell 1.5% in December.
The Russell 2000 index of smaller companies rose 10.29, or 1.49%, to 702.78.
Advancing issues outnumbered declining shares by nearly two to one on the New York Stock Exchange, where volume came to 1.74 billion shares.
