Stocks Stay Afloat As Jitters Continue
Thursday March 15, 2:30 pm ET
By Madlen Read, AP Business Writer
Stocks Waffle As Jitters Continue, Higher Than Expected Inflation Reading Has Little Impact
NEW YORK (AP) -- Stocks stayed afloat Thursday as signs of strength in corporate takeover activity, jobs and overseas markets allowed investors to stomach a sharp rise in wholesale inflation.
Investors also pounced on bargains following a 242-point drop in the Dow Jones industrials on Tuesday and a 57-point recovery on Wednesday that suggested the market is holding above the index's 12,000 mark, at least for now.
"There's some optimism because the market had fallen quite a bit and it showed resilience yesterday, which is encouraging," Ed Peters, chief investment officer at PanAgora Asset Management Inc. in Boston, adding that the sentiment could shift with the consumer price index's release Friday. "Some days the pessimists win, some days the optimists win. The market goes back and forth."
Investors were still jittery, selling briefly when the Federal Reserve's former chairman Alan Greenspan rekindled investors' worries about U.S. lending practices. Greenspan said at a conference in Boca Raton, Fla., that home prices are a larger issue than subprime lending, and that while he doesn't yet see economic spillover from the housing slowdown, but that he is already seeing collateral debt troubles.
The Labor Department's Producer Price Index for February jumped by 1.3 percent, more than twice the market estimate, due to a big increase in energy prices and the largest rise in food costs in more than three years. Even excluding food and energy prices, the core PPI rose 0.4 percent, double what analysts predicted.
The Federal Reserve meets next Tuesday and Wednesday to decide whether to adjust short-term interest rates. The central bank is expected to keep rates on hold, but any statement that indicates that they might raise or lower rates later in the year could move the markets.
In midafternoon trading, the Dow rose 7.93, or 0.07 percent, to 12,141.33. The Dow is 645 points below its closing high of 12,786.64, reached Feb. 20.
Broader stock indicators were also higher. The Standard & Poor's 500 index gained 3.93, or 0.28 percent, to 1,391.10, and the Nasdaq composite index advanced 2.18, or 0.09 percent, to 2,373.92.
Bonds were flat. The yield on the benchmark 10-year Treasury note was at 4.54 percent, the same as late Wednesday.
The dollar was mixed against other major currencies, and gold prices rose.
There was also a short pullback in stocks ahead of the Philadelphia Fed's manufacturing index, which showed that the region's manufacturing growth slowed in March. Wall Street had expected activity to increase. Earlier, the New York Fed had also reported a steep deceleration in its March manufacturing growth.
But investors largely shrugged off the reports, not shocked that manufacturing is retreating and hopeful that economic weakness could cause the Fed to cut rates.
"People should be thinking that the odds of the Fed cutting rates are pretty slim this year, but there seems to be this dogged optimism, or blind hope, that that will happen," Peters said.
Though the market has steadied itself since Tuesday's drop, market watchers aren't discounting the possibility of more seesawing as new data trickles in and as investors try to get a sense of how widespread the problems facing subprime lenders are. Subprime lenders make loans to people with poor credit, and rising defaults in those loans have been a factor in the market's volatility.
"We haven't hit bottom yet, so we're going to get these pretty violent swings," said Barry James, president and chief executive of James Investment Research Inc. "But we don't see this as the beginning of a big bear market yet. We think this just a normal correction."
Volatility is also high ahead of contract expirations Friday for stock index futures, stock index options, stock options and single stock futures.
Market participants are fairly confident that the job market is holding steady despite the cooling economy. The Labor Department Thursday said the number of Americans seeking unemployment benefits fell by 12,000 to 318,000 last week. It was the second straight week of declines, but analysts noted that the weekly data can swing drastically from week to week.
Investors drew some additional relief from advancing Asian and European markets, most of which climbed more than 1 percent.
Also lifting U.S. stocks was an unsolicited $9.9 billion all-stock bid by the IntercontinentalExchange Inc. for commodities exchange CBOT Holdings Inc. Despite the cooling economy, merger-and-acquisition activity has been surging, suggesting to some investors that problems in some sectors -- notably the sluggish housing market, struggling auto makers, and hemorrhaging subprime lenders -- haven't seeped into the stronger areas of the economy.
IntercontinentalExchange's bid for CBOT came amid an already agreed-upon $8 billion takeover by Chicago Mercantile Exchange Holdings Inc.
CBOT rose $22.61, or 13.6 percent, to $188.70, and ICE fell $4.85 to $127.08. CME fell $23.21, or 4.1 percent, to $540.76.
In other takeover news, Cisco Systems Inc. agreed to acquire Web conferencing company WebEx for about $3.2 billion in cash, while General Electric Co.'s Capital Solutions business and Blackstone Group agreed to buy PHH Corp. for $1.69 billion. PHH provides mortgage and vehicle fleet management services.
Cisco fell 2 cents to $25.83, and WebEx rose $10.25, or 22.2 percent, to $56.45.
GE rose 31 cents to $34.62, and PHH rose $3.32, or 11.9 percent, to $31.13.
Oil prices fell 10 cents to $58.06 a barrel on the New York Mercantile Exchange, after the Organization for Petroleum Exporting Countries decided to keep output steady, as expected.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 978.5 million shares.
Overseas, Japan's Nikkei stock average rose 1.10 percent. Britain's FTSE 100 gained 2.21 percent, Germany's DAX index added 2.14 percent, and France's CAC-40 advanced 1.77 percent.
The Russell 2000 index of smaller companies was up 4.98, or 0.64 percent, at 780.66.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
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