Posted at 11:18 a.m., Wednesday, July 20, 2005
Stocks rise on Greenspan's comments
By Ellen Simon
The Nasdaq composite index and the Standard & Poor's 500 hit new four-year highs.
The market opened lower as investors punished Intel Corp. and Yahoo Inc. after their earnings reports, issued following the close of regular trading yesterday, fell below analysts' expectations. Stocks briefly slid further after Greenspan told Congress that the economy should enjoy sustained growth with low inflation in coming months, a sure sign incremental interest rate hikes would continue.
But the selloff didn't stick additional rate increases have long been expected. The market tends to fall when Greenspan starts talking and gain when he's done, said Todd Leone, managing director of equity trading at SG Cowen Securities.
"It's the uncertainty" that pushes stocks down, Leone said. "You never know what he's going to say, but today he said what everyone expected."
Investors also reconsidered the flow of earnings, which have been positive aside from a few high-profile disappointments.
According to preliminary calculations, the Dow Jones industrial average rose 42.59, or 0.40 percent, to 10,689.15.
Broader stock indicators also were higher. The Standard & Poor's 500 rose 5.85, or 0.48 percent, to 1,235.20, its best close since July 2, 2001, and the Nasdaq composite index rose 15.39, or 0.71 percent, to 2,188.57, moving into positive territory for the year and reaching its highest point since June 18, 2001.
Bonds were higher, with the yield on the 10-year Treasury note falling to 4.17 percent from 4.19 late yesterday. The dollar fell against the euro. Gold prices were higher.
Crude oil prices dropped more than $1 a barrel at one point after the Energy Department's weekly data on petroleum reserves was better than expected. A barrel of light crude settled at $56.72, down 74 cents on the New York Mercantile Exchange.
In his last testimony to Congress before he retires, Greenspan's assessment of the economy was largely upbeat, although he listed three threats to the economic outlook. First, the possibility that wage pressures, which have been dormant, will intensify. Then, the threat posed by surging energy costs and finally, the dangers posed to the housing market if long-term interest rates rise considerably.
"The significant rise in purchases of homes for investment since 2001 seems to have charged some regional markets with speculative fever," Greenspan said.
He also said the increased use of exotic mortgages, such as interest-only loans, were of "particular concern." He said these types of mortgages left homeowners "vulnerable to adverse events" if home prices begin to fall.
In stocks, investors pummeled the day's losers. Intel fell $1.27 to $27.44 after it reported strong earnings, but a gross margin below analysts' forecasts. Investors also ignored Yahoo's stellar earnings, instead focusing on how the results missed analysts' lofty expectations. The stock fell $4.33 to $33.40.
Eastman Kodak Co. fell 64 cents to $28.10 after it suffered its second straight quarterly loss. The struggling photography company also announced as many as 10,000 additional job cuts on top of 12,000 to 15,000 already planned layoffs.
Investors sold off General Motors Corp. after the automaker missed earnings forecasts by a wide margin. Its stock fell 25 cents to $36.58. The company reported a $286 million loss in the second quarter, dragged down by a $1 billion-plus loss at its North American automotive operations.
"We weren't prepared for major household names to disappoint," said Arthur Hogan, chief market analyst at Jefferies & Co. "But as the day wears on, the market is starting to rationalize that it's more company-specific than market-specific. ... During this earnings season, we've had more good news than bad news. About 80 percent of companies have met or beat their earnings estimates."
Amgen Inc. rose $10.65 to $81.17 after the biotech company's second-quarter earnings beat expectations and the company increased its already rosy financial outlook for the year.
Pfizer Inc., the world's largest research-based drug maker, fell 32 cents to $27.06 after its second-quarter earnings gained 21 percent, beating analysts' expectations. Earnings were helped by strong sales of the company's blockbuster cholesterol drug, Lipitor.
Drug maker Wyeth Co. beat analysts' estimates as its second-quarter profit climbed 18 percent, driven by strong sales of the company's lead anti-depressant and arthritis treatments. Wyeth rose $1.28 to $46.28.
JPMorgan Chase & Co., the nation's third-largest bank, reported a drop in trading revenue, but its earnings beat reduced analysts' projections. The stock fell 5 cents to $35.16.
Diversified manufacturing company United Technologies Corp. rose 9 cents to $51.94 after the company said its second-quarter profit rose 19 percent, beating analysts' expectations. Results were aided by improved performance in most of its businesses and favorable tax and interest income changes from previous audits.
Advancers led decliners 2 to 1 on the New York Stock Exchange, where volume came to 1.57 billion shares, up from 1.56 billion at the same time yesterday.
The Russell 2000 index of smaller companies rose 8.70, or 1.30 percent, to 677.56.
Overseas, Japan's Nikkei stock average rose 0.21 percent. In afternoon trading, Britain's FTSE 100 was up 0.26 percent, Germany's DAX index was up 0.29 percent, and France's CAC-40 was down 0.13 percent.