A sharp decline in oil prices and a surprise drop in wholesale prices pushed stocks higher on Wall Street today as investors’ concerns about third quarter earnings were mitigated.
The Nasdaq composite index surged with investors buying heavily into an oversold technology sector.
Oil prices fell briskly through the afternoon, again moving below 43 per barrel after spiking higher on Thursday. A barrel of light crude settled at 42.81, down 1.80, on the New York Mercantile Exchange.
Investors welcomed the 0.1% drop in the Producer Price Index, the Labour Department’s measure of wholesale prices, since the news was a strong sign that the US economy has still managed to keep inflation at bay despite this summer’s rising oil costs.
A profit warning from Alcoa, which slashed its third-quarter forecast by about 40%, weighed heavily on investors’ minds and kept the Dow Jones industrial average lower for most of the session.
Automotive systems manufacturer Visteon’s warnings drove new fears about the health of the car market and overall consumer spending.
“I think investors have become a bit spoiled with all the positive pre-announcements and upside earnings surprises we’ve had over the last year,” said Jack Caffrey, equities strategist at JP Morgan Private Bank. “Companies have been guiding up over the last several quarters, and now investors have become overly enthusiastic. It behoves companies to keep expectations reasonable. And we’re still seeing profit growth, it’s just that it’s moderated.”
The Nasdaq gained 24.66, or 1.3%, to close at 1,894.31.
Other stock indicators also moved higher. The Standard & Poor’s 500 index was up 5.54, or 0.5%, at 1,123.92, and the Dow Jones industrial average rose 23.97, or 0.2%, to 10,313.07.
For the week, the Dow rose 0.5% and the S&P was up 0.9%, while the Nasdaq soared 2.7%, though the tech-focused index remains down 5.4% for the year.
New uncertainties kept stocks volatile through the week, with concerns over employment, oil prices and earnings all weighing on Wall Street. Positive earnings outlooks from Nokia and Texas Instruments boosted long-suffering tech stocks and the Nasdaq, while blue chips suffered from muddled economic data and negative outlooks.
Today’s drop in wholesale prices was encouraging considering that, aside from food and oil prices, which can vary widely, the “core” PPI also fell 0.1%, showing that wholesale prices have become somewhat resilient to the high energy costs that have plagued Wall Street through the summer. Economists had been expecting a 0.2% increase in both PPI and core PPI.
“We had good news on the PPI, but you still have the nagging problem of energy prices,” said Joseph Battipaglia, chief investment officer at Ryan Beck & Co. ”The economy is expanding, but not at a robust pace, certainly, and profits are decelerating. There’s nothing to prompt us breaking out of this particular range we’re in.”
The economic data, combined with worrisome third-quarter profit warnings, raised new questions about whether the Federal Reserve needs to raise interest rates at its September 21 meeting. The Fed is widely expected to raise the benchmark lending rate from 1.5% to 1.75%. However, the unevenness of the economic recovery – lagging jobs, a lack of inflationary pressure and underperforming companies – combined with the election could persuade the Fed to hold off on a rate hike until after November 2.
Alcoa fell 2.54 to 30.75 after reducing its forecasts for the third quarter due to labour issues and plant closings. Alcoa expects to earn 30 cents to 35 cents per share, far less than Wall Street’s forecast of 52 cents a share.
Visteon cited Ford’s cutbacks in production as a factor in taking a one-time charge of up to 900 million in the third quarter. The company also warned that profits in the second half of 2004 and for the full year would be ”significantly below” expectations. Visteon tumbled 1.00, or 11%, to 8.00, while Ford slipped 21 cents to 13.96.
A federal judge cleared the way for Oracle’s 7.7 billion proposed takeover of rival PeopleSoft Inc, dismissing a federal antitrust suit that sought to block the hostile effort. Oracle was up 53 cents at 10.46, while PeopleSoft, which said it would still fight the takeover, surged 1.84 to 19.79 on speculation that Oracle would sweeten its offer.
Walt Disney Co gained 30 cents to 23.16 after chief executive Michael Eisner announced he would step down on September 30, 2006. Eisner, who relinquished the chairmanship of the company this year amid controversy, said his early announcement would smooth the transition to new leadership.
Advancing issues outnumbered decliners by about 5 to 4 on the New York Stock Exchange, where volume totalled 1.26 billion shares, compared with 1.36 billion on Thursday.
The Russell 2000 index of smaller companies was up 3.73, or 0.7%, at 569.91.