Late rebound for US stocks

Stocks rebounded from an earlier decline to post moderate gains on Wall Street today as investors looked past a mediocre outlook from Dow Jones industrial Pfizer and a new record US trade deficit.

Stocks rebounded from an earlier decline to post moderate gains on Wall Street today as investors looked past a mediocre outlook from Dow Jones industrial Pfizer and a new record US trade deficit.

The major indexes finished the week mixed.

Pfizer’s profit warning dragged the Dow into negative territory for most of the day and added to traders’ concerns about weak overall corporate earnings in 2006 amid a slowing economy.

A fourth record trade deficit of US$725.8bn (€609.61bn) last year also left Wall Street wondering whether rising energy and import prices could spark domestic inflation.

But the market managed to recoup its losses and pressed higher late in the day, giving the Dow a sturdy advance this week.

Analysts have been expecting volatility among stocks following January’s rally and with no major events on the horizon to clarify investors’ uncertainty about the economy.

Steven Goldman, chief market strategist for Weeden & Co., said traders were assessing the latest round of earnings reports and whether stocks were fairly priced – or even overpriced. He added that the widening gap between short- and long-term bond yields also stoked worries about a downturn.

The Dow rose 35.70, or 0.33%, to close at 10,919.05, after losing as much as 63 points early in the session.

Broader stock indicators also reversed course. The Standard & Poor’s 500 index gained 3.22, or 0.25%, to end at 1,267.00, and the Nasdaq composite index advanced 6.01, or 0.27%, to 2,261.88.

“To me, valuation on the average stock has reached fully valued territories,” Goldman said. “If you look at price-to-earnings-ratios, they're within 7% of the all-time high.”

Bonds pulled back from an early runup, with the yield on the 10-year Treasury note jumping to 4.58% from 4.55% on Thursday. The two-year Treasury yield was up at 4.68%, but the inversion of the yield curve signalled a lack of short-term confidence and foreshadowed a possible economic slide.

Meanwhile, the dollar was down against most major currencies, as gold prices plunged.

Crude futures slipped following a report suggesting that high prices were starting to stifle demand. The drop came even as concerns about political unrest in oil-producing countries persisted, with a barrel of light crude losing 78 cents to settle at US$61.84 (€51.94bn) on the New York Mercantile Exchange.

This week, the Dow jumped 1.16%; last week, the index skidded 113 points after gaining 240 points the week before. The S&P 500 added 0.23% and the Nasdaq declined 0.23% for the week.

And more up-and-down trading is likely in the coming weeks without much news to energise investors, analysts say.

“We had the end of the earnings season and lots of news just recently behind us that maybe requires a little absorption period,” said Susan Malley, chief investment officer for Malley Associates. “I think a soft market for a couple of weeks is okay.”

Investors were unhappy with a lowered sales outlook for Pfizer’s top-selling Lipito cholesterol drug. The company’s 2006 earnings forecast of 2 per share was 3 cents short of analysts’ estimates. Pfizer dropped 66 cents to 25.68.

Rival drugmaker and fellow Dow component Merck fell 3 cents to 34.31 following news that editors at the New England Journal of Medicine demanded changes to the published study that led the company to pull its painkiller Vioxx, and which Merck is using today as a pillar to its defence in liability suits.

Oracle confirmed it would cut up to 2,000 jobs as part of its effort to absorb its recent acquisition of Siebel Systems and issued earnings guidance in-line with Wall Street forecasts. Oracle finished flat at 12.69.

Advancing issues were even with decliners on the New York Stock Exchange, where volume of 1.7bn shares lagged the 1.78bn shares that changed hands on Thursday.

The Russell 2000 index of smaller companies lost 1.03, or 0.14%, to close at 717.13.

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