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Markets march in step with Fed

May 02, 2008|Walter Hamilton | Times Staff Writer

NEW YORK — For at least a day, the financial markets seemed to take a perfect cue Thursday from the Federal Reserve.

Oil and other commodity prices fell. The dollar strengthened. Earnings news was generally positive.

And investors, liking what they saw, drove stock prices up sharply.

A day after the Fed knocked an additional quarter of a point off a key interest rate, the Dow Jones industrial average and the Standard & Poor's 500 index both crossed near-term thresholds that could signal further gains ahead.

After flirting with 13,000 in recent days, the Dow inched above that mark, and the S&P 500 hopped over 1,400 for the first time since mid-January. The S&P's jump was seen as particularly bullish.

"Round numbers are always nice," said Sam Stovall, S&P's chief investment strategist. "Investors tend to look upon them as psychological supports or barriers, so breaking above them can be positive."

For the day, the Dow jumped 189.87 points, or 1.5%, to 13,010.00, and the S&P index advanced 23.75 points, or 1.7%, to 1,409.34.

The tech-laden Nasdaq composite index rose strongly, rising 67.91 points, or 2.8%, to 2,480.71. Shares of computer chip maker Intel rose 4.6%; Symantec's stock surged 12.3% after the maker of security software reported strong earnings.

The often battered financial stocks bounded higher on hopes that a nascent loosening of the credit markets could put an end to the billion-dollar write-offs on Wall Street.

Merrill Lynch jumped 5.1%, Citigroup was up 4.2% and JP Morgan Chase rose 3.4%.

With the Fed's interest rate cut, which could be the final reduction for a while, investors once again grew excited at the prospect of stronger economic growth in the second half of the year stoking consumer spending and corporate earnings.

Bulls are counting on the Fed's rate-cutting campaign and the rebate checks being mailed to taxpayers in the government's economic stimulus plan to stoke growth.

"Whether you think consumers are going to run out and spend their [rebate] checks or not, some people are going to spend," said Marc Pado, U.S. market strategist at Cantor Fitzgerald. "The market is anticipating that."

Of the S&P 500 companies that have reported first-quarter results, earnings have fallen 15%, according to Thomson Reuters -- a grim figure but better than their 25% tumble in the fourth quarter.

Although first-quarter profits at financial-services firms fell 73%, bulls point out that most other companies are faring reasonably well given concerns about the economy. Excluding financials, first-quarter earnings would have risen 8%, Thomson Reuters said.

Profits are expected to fall an additional 6% in the second quarter, but to pick up almost 14% in the third quarter and a huge 62% in the fourth quarter, according to a Thomson consensus of analysts' estimates.

"It's part of making the transition [to believing] that we have passed the worst," said Charles Blood, director of strategy research at Brown Bros. Harriman & Co.

Bears counter that stocks were due for an extended bounce after their sharp losses early in the year but that buying could peter out as the spring progresses. They worry that further housing woes or a drop in consumer spending could drag down the economy.

Shares of oil giant Exxon Mobil slipped 3.6%, or $3.37, to $89.70, contributing to a pullback in the energy sector. Although Exxon's first-quarter earnings leaped 17%, they missed analyst estimates, and investors fretted about production levels and profit margins.

Still it was hard to ignore the bright day for the markets, which have been beaten up.

The dollar strengthened after the Fed indicated it might pause in its rate-cutting efforts. The dollar rose to near a five-week high against the euro, which lost 0.018 to $1.546. Oil eased for a third straight day. Crude oil for June delivery fell 94 cents to $112.52.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.76% from 3.73% late Wednesday.

Intel shares gained $1.03 to $23.29; Symantec rose $2.12 to $19.34.

Merrill Lynch jumped $2.56 to $52.39; Citigroup was up $1.04 to $25.99; JP Morgan Chase rose $1.60 to $49.25.

The government reported that consumer spending rose 0.4%, more than expected, but that initial claims for jobless benefits also topped estimates, rising 35,000 to 380,000.

The market will get a test today when monthly unemployment data are released. Analysts expect further job losses.

--

walter.hamilton@latimes.com

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