Stocks got a lift from Federal Reserve Chairman Alan Greenspan today, rising modestly after he said the recent climb in oil prices was already curbing demand for crude. Oil futures dropped sharply on the news.
Speaking before a group of US petrochemical producers, Greenspan said more refining capacity was needed around the world, but that energy demand was already starting to soften, a trend that could help bring prices down.
That assessment of the oil situation, investors believed, could keep the Fed from raising rates aggressively, since it appeared unlikely that inflation would accelerate due to higher prices.
Analysts, however, said that for the short-term, Greenspan’s comments didn’t change the fact that oil, which traded above US$58 (€45.12) a barrel on Monday, remains near record highs, and interest rates are on the rise, gradually or not.
The result was a trendless session on Wall Street that showed only a modest response to Greenspan’s comments.
“Nothing has really changed for the market. You have rising rates, decelerating earnings growth and you’ve got energy prices,” said Russ Koesterich, senior portfolio manager at Barclay’s Global Investors in San Francisco.
“Energy continues to be a drag on the market because, sure, you’re down US$1 (€0.78) a barrel today, but these prices are still high and they’ll start to bite into consumer spending at some point.”
The Dow Jones industrial average rose 37.32, or 0.4%, to 10,458.46.
Broader stock indicators also moved higher. The Standard & Poor’s 500 index was up 5.27, or 0.4%, at 1,181.39, and the Nasdaq composite index gained 8.25, or 0.4%, to 1,999.32.
Crude oil futures dropped sharply after Greenspan’s remarks, with a barrel of light crude settling 97 cents lower at US$56.04 (€43.59) on the New York Mercantile Exchange. Bonds were down narrowly, with the yield on the 10-year Treasury note rising to 4.47% from 4.46% late Monday.
The dollar was narrowly mixed against other currencies, while gold prices rose.
Some investors sought bargains after March’s losses in the stock market. Many were still ambivalent and preferred to wait for next week, however, when first-quarter earnings reports start in earnest. Also, oil prices have not fallen enough to give investors a sense of lasting relief, even with Greenspan’s comments.
“I think you’re getting at least a few investors, with an asset allocation point of view, seeing these lower prices and getting back into the market,” said Joseph Battipaglia, chief investment officer at Ryan Beck & Co.
“The underlying economic fundamentals are pretty good, but you still have everyone’s favourite ghost – oil – making things very tentative.”
In corporate news, Morgan Stanley was down 1.85 at 56.45 after the group of dissident shareholders and former executives supported former President Robert Scott as chief executive to replace Philip Purcell.
The company’s decision, announced late Monday, to spin off its Discover Card business also failed to meet with Wall Street’s approval. Lehman Brothers downgraded Morgan Stanley’s stock after the announcement.
Pfizer Inc. cut its 2005 profit forecasts by 6% and unveiled a four-year, US$4bn (€3.11bn) cost-cutting programme. Implementing the program could cost up to US$6bn (€4.67bn) through 2008, however. Pfizer gained 97 cents to 26.90.
Verizon Communications Inc. rose 12 cents to 35.77 after the Dow component said it will drop its US$7.5bn (€5.83bn)bid for MCI Inc., if MCI says the recent US$8.9bn (€6.92bn) counter-bid by Qwest Communications International Inc is superior. Qwest rose 4 cents to 3.86, while MCI was down 7 cents at 25.01.
Online music service Napster Inc. raised its quarterly profit forecasts for the second time in a month due to better-than-expected sales and subscriptions. Napster climbed 57 cents, or 9.2%, to 6.74.
Advancing issues outnumbered decliners by about 4 to 3 on the New York Stock Exchange, where volume was moderate to heavy.
The Russell 2000 index of smaller companies was up 0.74, or 0.1%, at 614.50.