Stocks rise on drop in oil, Wells Fargo report
By TIM PARADIS, AP Business Writer 2 minutes ago
NEW YORK - Wall Street turned higher Wednesday as another drop in oil prices helped offset concerns about a jump in inflation last month. The Dow Jones industrial average rose more than 100 points.
Stocks drew support from oil prices that pulled back for a second straight day on concerns that a slowing economy will damp demand. Light, sweet crude fell $4.84 to $133.90 on the New York Mercantile Exchange, compounding a drop of $6.44 on Tuesday.
Meanwhile, bond prices fell sharply as investors retreated from the safety of government debt.
And a decision by Wells Fargo & Co. to boost its dividend countered some of the market's concerns about the health of banks. The San Francisco-based bank's move to raise its payout to investors is being seen as a bullish sign for the troubled banking sector. Still, the Labor Department's report that consumer prices shot up in June at the second fastest pace in 26 years is reminding investors that rising prices still pose a threat to economic growth.
Investors also remain worried about the economy and specifically the financial sector. This week has brought fresh attention to potential trouble spots in the mortgage market. Fannie Mae and Freddie Mac, the government-chartered mortgage giants, remain a concern, as do regional banks that could have bad mortgage debt on their books.
But, for the moment, investors were pleased by the drop in oil.
"I think the pullback in oil is significant. The market and the market participants clearly had digested what the impact was going to be if oil prices had stayed at that level," said Dan Genter, president and chief investment officer of RNC Genter in Los Angeles.
In midday trading, the Dow rose 124.00, or 1.13 percent, to 11,086.54. On Tuesday, stocks ended mostly lower on continuing worries about the financial sector and the Dow logged its first close below 11,000 since July 2006.
Broader stock indicators also rose after fluctuating in the early going. The Standard & Poor's 500 index advanced 9.03, or 0.74 percent, to 1,223.94, and the Nasdaq composite index rose 29.59, or 1.34 percent, to 2,245.30.
Advancing issues narrowly outpaced decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 668.4 million shares.
While Wednesday's advance likely indicates some enthusiasm among investors it can also reflect simple bargain hunting and traders laying down a few bets rather than any great change in conviction. With many quarterly reports due in the coming weeks, many investors remain uncertain about the health of the economy.
Bond prices declined. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 3.92 percent from 3.82 percent late Tuesday.
The dollar was mixed against other major currencies, while gold prices fell.
Oil prices declined after Energy Department figures showed that domestic inventories of crude oil and gasoline rose last week, rather than declining as analysts had expected.
"I think what you're seeing is people are feeling more confident that civilization as we know it is not going to cease to exist and that we're going to make a landing here," Genter said of the decline in oil. "The negative is there is not much of a catalyst here to really pick us up and get us back in the air."
The Labor Department's report that its Consumer Price Index rose 1.1 percent in June came as economists had expected a gain of 0.8 percent. Two-thirds of the increase is linked to surging energy prices. The core reading, which excludes often volatile food and energy costs, ticked up 0.3 percent.
Wall Street has been concerned in recent months that rising prices for necessities like food and fuel would force investors to curb their spending in other areas. A pullback is a disturbing prospect for investors as consumer spending accounts for more than two-thirds of U.S. economic activity. In addition, rising prices could lead the Federal Reserve to raise interest rates, a move that risks derailing economic growth by making access to capital more expensive.
Beyond the inflation reading, which follows a report Tuesday that showed a 1.8 percent increase in wholesale prices for June, investors examined a Fed report that industrial production rose 0.5 percent in June after declining 0.2 percent in May. The increase was the highest since a 0.6 percent gain in July of last year.
Wall Street is also awaiting minutes from the last meeting of the Federal Open Market Committee, the arm of the Fed that sets interest rates. The Fed last month broke a string of reductions by leaving rates unchanged at its last meeting, a recognition that lower rates had weighed on the dollar and led to increases in commodities such as oil and food. The minutes are due at 2 p.m. EDT.
In corporate news, Wells Fargo & Co. said its second-quarter earnings fell 22 percent as more customers at the nation's fifth-largest bank failed to repay loans. But the company's results beat Wall Street expectations, and investors were pleased by Wells Fargo's decision to raise its quarterly dividend to 34 cents from 31 cents. Wells Fargo rose $4.58, or 22 percent, to $25.09.
Cleveland-Cliffs Inc., an iron and coal miner, said it agreed to acquire coal producer Alpha Natural Resources Inc. for nearly $10 billion in cash and stock in a move aimed at increasing its role as a supplier to the world's steel industry. Alpha Natural surged $11.81, or 12 percent, to $106.73, while Cleveland Cliffs fell $8.46, or 7.8 percent, to $103.
Delta Air Lines Inc. rose 72 cents, or 15 percent, to $5.39 after reporting that high fuel prices led to a hefty second-quarter loss despite a strong increase in sales. The results topped Wall Street estimates, however, which excluded one-time items.
The Russell 2000 index of smaller companies rose 11.42, or 1.72 percent, to 673.77.
Overseas, Japan's Nikkei stock average rose 0.05 percent. Britain's FTSE 100 fell 0.60 percent, Germany's DAX index rose 1.21 percent, and France's CAC-40 rose 1.26 percent.
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