Stocks Stage Comeback
Thursday, March 1st 2007, 6:01 am
News On 6
NEW YORK (AP) _ A still skittish Wall Street staged a comeback Thursday, with the Dow Jones industrials erasing almost all of an early 209-point drop after an upbeat assessment of manufacturing activity calmed some fears about the economy grinding to a halt.
The blue chip index nudged into positive territory in midafternoon, then fluctuated in a narrow range. A few hours earlier, the broader Standard & Poor's 500 index made its first foray into the plus column after dropping 26 points at the start of trading.
Investors, relieved that manufacturing is still expanding, bought some of the stocks pummeled in Tuesday's drop, which sliced 416 points off the Dow on a plummeting Chinese stock market and worries raised by former Federal Reserve Chairman Alan Greenspan about a possible recession. The Dow is now about 360 points, or 2.8 percent, lower than its level on Monday, having rebounded halfheartedly Wednesday on soothing words from current Fed Chairman Ben Bernanke.
The Institute for Supply Management's index of February manufacturing activity came in at 52.3, stronger than the 50.0 reading analysts expected. The index is an important measure of a part of the economy that has given investors headaches in recent months. Manufacturing had contracted a month earlier, according to the index, suffering from the listless housing market and hard-up auto industry. A reading at 50 and above indicates expansion, while anything below 50 signals contraction.
The ISM data helped the market regain lost ground, but anxiety still plagued the Street, with the indexes bouncing around choppily as many investors bailed out of equities and fled to safe havens like Treasurys, betting that stocks could see a bigger correction.
``The aftermath of Tuesday's major selloff will linger for the next couple of days. I don't think we're totally out of the woods yet,'' said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.
In late afternoon trading, the Dow Jones industrial average was down 1.04, or 0.01 percent, at 12,267.59, after dropping as low as 12,056.54 in the first hour of trading. It hasn't traded at these levels since early December.
Broader stock indicators also wavered. The Standard & Poor's 500 index was up 0.35, or 0.02 percent, at 1,407.17, while the technology-dominated Nasdaq composite index was down 1.46, or 0.06 percent, at 2,414.69.
Stocks plunged Tuesday amid growing worries that the U.S. and Chinese economies are slowing, then recovered slightly on Wednesday as Bernanke predicted the U.S. economy would continue to grow moderately. The market appears to be trading in a pattern similar to past downturns: dropping sharply one day, regaining some ground the next and then resuming its slide or waffling as investors were unable to recoup their lost confidence in stocks.
``The early morning hours raised the concern that we haven't hit our bottom yet,'' said Jack Caffrey, equities strategist at J.P. Morgan Private Bank. ``It's probably going to be a grinding, sideways movement over the next few days as people realize there are risks out there.''
Bond prices initially rose sharply on falling stocks Thursday. They later pared those gains as investors re-entered the stock market, pushing the yield on the benchmark 10-year Treasury note to 4.56 percent, down from 4.57 percent late Wednesday.
Gold prices fell, while the dollar was higher against most major currencies, except for the Japanese yen. The dollar has been losing ground to the yen, as traders unwind so-called yen carry trades _ borrowing the low-yielding yen to invest in the dollar, a technique that many market watchers say helped accelerate the U.S. market's recent decline. The dollar traded at 117.62 yen by early afternoon on Thursday, down from Wednesday's levels but higher from an earlier low of 116.94.
U.S. investors began the day rattled by another series of declines in Asian and European markets.
``It's kind of the tail wagging the dog today. There's no stability in Asian markets, and no stability in European markets. We're trading the market as the rest of the globe is,'' said Arthur Hogan, chief market analyst at Jefferies & Co.
Overseas, Japan's Nikkei stock fell 0.86 percent, and the Shanghai Composite Index lost 2.9 percent. Britain's FTSE 100 fell 0.90 percent, Germany's DAX index tumbled 1.12 percent, and France's CAC-40 dropped 1.05 percent.
But the U.S. market began recovering by midmorning, as investors examined the U.S. economic reports released Thursday.
``As far as data goes, there's more good news than bad news,'' Hogan said.
The Commerce Department said personal incomes rose in January at the fastest pace in a year, fueled in part by executive bonuses and pay hikes for federal workers. Personal incomes rose by 1 percent in January, the largest advance since January 2006, while consumer spending was up 0.5 percent. A confident consumer willing to spend is a good sign for Wall Street that the economy won't slow down too suddenly.
The report also showed inflation excluding sometimes volatile energy and food prices rose 0.3 percent in January, the largest one-month gain since August. But the gauge that leaves in energy and food rose by 0.2 percent, and moderated to 2 percent year-over-year _ at the top of the Fed's 1 percent to 2 percent target.
``It's slipped back into their comfort zone. It takes the Fed tightening question right off the table,'' Hogan said.
Not all the economic snapshots Thursday were upbeat: Construction activity fell by 0.8 percent in January, double the decline that analysts had been expecting, and the Labor Department reported that the number of newly laid off workers filing claims for unemployment benefits rose by 7,000 last week to 338,000. Economists had been expecting a drop in claims.
But taken together, recent data still paint a picture of moderating economic growth and cooling inflation _ technically, an ideal long-term situation for stocks.
``The fear of recession is overblown. I don't think we're headed for recession in 2007,'' Cardillo said.
Until the stock market stabilizes, though, every piece of data released will be gnawed on and digested by jumpy investors, meaning a single snippet of bad news could trigger another huge selloff.
Declining issues narrowly outnumbered advancers on the New York Stock Exchange, where volume came to a heavy 1.77 billion shares.
The Russell 2000 index of smaller companies was up 1.89, or 0.24 percent, at 795.18.