Investors welcomed a lower-than-expected drop in wholesale prices and sent stocks higher today, ending a troubled week on Wall Street on a positive note.
The major indexes nonetheless suffered a loss for the second straight week.
Wall Street had been hoping for a decline in the Producer Price Index, fearing that a rise in wholesale prices would prompt the Federal Reserve to be more aggressive in raising interest rates. The PPI fell 0.7% in December, much more than the 0.2% decline economists expected. It was the steepest decline in the PPI since April 2003.
The PPI report allowed investors to recover at least part of Thursday’s losses and helped the dollar gain ground against most other currencies. Oil prices, however, continued to rise as investors hedged against the return of wintry weather to the Northeast. A barrel of light crude settled at 48.38 dollars, up 34 cents, on the New York Mercantile Exchange.
“I think with the response to this you’re seeing on the markets, it’s telling us that high prices really aren’t sustainable,” said John Lynch, chief market analyst at Evergreen Investments. “Even oil’s not going to be inflationary, and with that, I think we can see slow, steady growth in the economy.”
The Dow Jones industrial average rose 52.17, or 0.5%, to 10,558.00, making back near half the 111.95 it lost Thursday.
Broader stock indicators saw moderate gains. The Standard & Poor’s 500 index was up 7.07, or 0.6%, at 1,184.52, and the Nasdaq composite index climbed 17.35, or 0.84%, to 2,087.91.
The PPI report took pressure off stock prices, which have slumped for the second week in a row due to high energy prices and concerns over inflation. While Intel Corp. and Apple Computer Inc. both issued stellar earnings reports, the lingering worries on Wall Street prevented the good news from moving most stocks, even within the technology sector.
For the week, the Dow fell 0.43%, the S&P 500 was down 0.14%, and the Nasdaq lost 0.03%.
Investors entered 2005 with a caution that surprised many analysts, but they could regain confidence with good economic data and strong earnings reports in the week ahead.
“The economic numbers today were good, we’re building off that, but really, it’s all about earnings next week, especially guidance for the year,” said Jay Suskind, head trader at Ryan Beck & Co. “The guidance we’ve seen so far has been a wash, so we’ll be looking for evidence that companies believe the economy will keep going.”
In particular, should the Consumer Price Index, due on Wednesday, follow the PPI with a lower-than-expected figure, the concern over prices and inflation would abate considerably, analysts said, and Wall Street could continue to expect the Fed to raise rates in regular, quarter percentage point increments.
In corporate news, insurance broker Marsh & McLennan Cos. Inc. has offered to pay 600 million dollars to settle New York Attorney General Eliot Spitzer’s charges of bid rigging and price fixing, according to media reports. However, Spitzer is reportedly seeking 750 million dollars and a public apology from the company. Marsh & McLennan rose 1.14 dollars to 31.51 dollars.
The US Food and Drug Administration rejected a bid from Merck & Co. and Johnson & Johnson to have their cholesterol drug, Mevacor, sold to consumers without a prescription. Merck shares nonetheless added 22 cents to 30.87 dollars, while Johnson & Johnson gained 73 cents to 62.70 dollars.
Sun Microsystems Inc. fell 36 cents to 4.22 dollars after the company reported a small fourth-quarter profit, but said revenues continued to fall compared with last year. Sun’s sales fell short of Wall Street’s forecasts.
A pair of brokerage reports issued today said General Motors Corp.’s 2005 outlook was optimistic, even as the automaker said profits this year could shrink by as much as two dollars per share. Both Deutsche Bank and Credit Suisse First Boston said GM’s forecasts for auto sales may be too ambitious. GM lost 19 cents to 37.13 dollars.
Boeing Co. rose 28 cents to 50.91 dollars after the aircraft manufacturer announced it would take 617 million dollars in one-time charges in fourth quarter. The charges stem from ending production on Boeing’s 717 aircraft, which never gained traction in the market, and the Air Force 767 tanker programme, to which Boeing said it remains committed.
Advancing issues outnumbered decliners by about 9 to 4 on the New York Stock Exchange, where volume was moderate.
The Russell 2000 index of smaller companies was up 7.35, or 1.2%, at 617.48.