Stocks rise on Greenspan comments, earnings reports
Stocks turned higher Wednesday after Federal Reserve Chairman Alan Greenspan delivered an upbeat assessment of the economy and Wall Street focused on the solid earnings reported by a growing number of companies.
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 Tuesday, 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.
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.
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.
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 Tuesday. 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 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.
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 Tuesday.
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.
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