Earnings reports help boost markets
NEW YORK – Wall Street bounced back Wednesday from its sharp decline a day earlier, boosted by takeover activity ahead of second-quarter earnings reports.
Investors shaken by profit warnings earlier in the week appeared to be cautiously optimistic as they awaited quarterly earnings reports.
Meanwhile, new merger and acquisition activity encouraged buying. Steelmaker Gerdau Ameristeel Corp. said late Tuesday it was buying Chaparral Steel Co. for $4.22 billion, while speculation mounted Wednesday that Colgate-Palmolive Co. was interested in buying all or part of Unilever.
Giving the stock market an extra lift, Fed officials alleviated some jitters about problems involving subprime lending. Philadelphia Federal Reserve President Charles Plosser said the financial system is well-equipped to handle home loan risks, and Fed Governor Kevin Warsh said that while subprime exposure troubles may not be over, they are not spilling into the broader economy.
Market watchers found it auspicious that Wall Street managed to recover some ground from its tumble Tuesday, when the Dow Jones industrial average lost 148 points, but said investors may not be out of the woods yet.
“There’s still, I sense, some caution, and I think the principal reason for the caution is that we have the heart of the earnings season ahead of us,” said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. “No one wants to make a major commitment to the market until we see the earnings reports. Earnings reports are a big hurdle that’s on the horizon.”
The Dow rose 76.17, or 0.56 percent, to 13,577.87.
Broader indexes also rebounded. The Standard & Poor’s 500 index gained 8.64, or 0.57 percent, to 1,518.76, and the Nasdaq composite index advanced 12.63, or 0.48 percent, to 2,651.79.
Bonds slipped as investors re-entered the stock market. The yield on the benchmark 10-year Treasury note rose to 5.08 percent from 5.03 percent late Tuesday.
The dollar fell to a new record low against the euro and a 26-year low versus the British pound, but rose versus the yen.
Stocks plummeted Tuesday on disappointing forecasts from Home Depot Inc., Sears Holdings Corp., and homebuilder D.R. Horton Inc., and after Standard & Poor’s and Moody’s said they would slash the ratings of billions of dollars worth of bonds backed by subprime mortgages.
The market’s concerns about risky home loans are likely to keep dogging the market. “The actual financial impact is anybody’s guess. The market doesn’t like uncertainty,” said Jim Herrick, manager and director of equity trading at Baird & Co.