Fed statement takes steam out of stocks
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By Hope Yen
Associated Press
NEW YORK — Wall Street moved higher on another spate of encouraging earnings today but gave up some of its gains after a cautionary statement about the economy by the Federal Reserve.
Blue-chip stocks rose as much as 109 points but fell back after the Fed, which left interest rates unchanged, said the economy still faces risks of weakening economic activity.
"The best scenario for investors would be positive statements that the economy is picking up, investment is picking up, and risks are toward the upside with a possible rate increase," said Arnie Holzer, senior investment strategist for Deutsche Asset Management Americas. "But clearly we're not at that level yet."
The Dow Jones industrial average closed up 56.79, or 0.7 percent, at 8,588.36, having fallen 51 points yesterday.
The broader market also closed higher. The Nasdaq composite index rose 19.67, or 1.3 percent, to 1,523.71. The Standard & Poor's 500 index rose 7.84, or 0.9 percent, to 934.39.
Stocks, which had a solid advance last week, tried to regain their upward momentum following yesterday's loss. But the Fed's statement on the economy turned some investors cautious.
The Fed unanimously voted to hold the federal funds rate steady at 1.25 percent, but policymakers left open the possibility of additional cuts in the future if the economy were to backslide.
"The committee believes that ... the balance of risks to achieving its goals is weighted toward weakness over the foreseeable future," its statement said.
Sung Won Sohn, chief economist at Wells Fargo in Minneapolis, said the comments underscore the uncertainty regarding the strength of an economic rebound many investors hope to see by year's end.
"In earlier comments, (Fed Chairman Alan) Greenspan stated the economy should rebound after the war. However, there is little evidence that the economy is rebounding," he said. "It will be June and July before we find out if economic statistics confirm Greenspan's economic outlook."
With the better-than-expected earnings season winding down, investors are starting to look for more solid evidence the economy is improving before committing further to stocks. Until then, trading is likely to be choppy, analysts say.
"The general tone you're seeing is a better diversity in terms of which stocks are giving some positive earnings surprises," Holzer said. "Looking forward, there's been so much cost-cutting that if companies get any modest firming in economic growth, profits can be relatively good."
Marvel Enterprises advanced $1.52, or 8.3 percent, to $19.82 after the comic book publisher posted quarterly earnings that beat Wall Street's estimates; it also raised its 2003 outlook.
EchoStar Communications gained $1.54 to $32.17 after the satellite broadcaster reported first-quarter income that beat Wall Street's expectations.
Cisco Systems, a leading maker of networking equipment, rose 51 cents to $15.90 ahead of its earnings report set to be released after the close of markets.
Decliners included Gillette, which fell $1.01 to $30.97, after the maker of razors and Duracell batteries reported quarterly income that came in a penny higher than estimates, due to higher battery sales; however, it cautioned the jump came on unusual factors such as the war.
Advancing issues outnumbered decliners 9 to 5 on the New York Stock Exchange. Volume was moderate.
The Russell 2000 index rose 2.95, or 0.7 percent, to 412.75.
Japan's Nikkei stock average finished 2.2 percent higher today. France's CAC-40 rose 2.1 percent, Britain's FTSE 100 gained 1.4 percent and Germany's DAX index increased 1.8 percent.
