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U.S. stocks rise for a second day; yields slip
Question of the Day
NEW YORK (AP) — U.S. stock indexes moved higher for a second day Wednesday as bond yields fell, easing worries that higher interest rates could upset the economy.
The Dow Jones industrial average was up 96 points, or 0.7 percent, to 14,857 as of 12:15 p.m. EDT. Boeing led the Dow higher with a jump of $2.07, or 2.1 percent, to $100.71.
The Standard & Poor’s 500 was up 14, or 0.9 percent, to 1,602. All 10 industry sectors in the S&P 500 were up, led by health care stocks. The Nasdaq composite index was up 20 points, or 0.6 percent, to 3,368.
Traders bought bonds, and yields fell after the government reported that the U.S. economy grew at a significantly slower rate than previously thought in the first three months this year. The annual rate is now estimated at 1.8 percent, compared with an earlier forecast of 2.4 percent.
Investors may have decided that the slower-growing economy will influence the Federal Reserve to delay any plans to pull back on stimulus measures. Those measures, which include buying bonds, are meant to prop up the economy by keeping interest rates low and encouraging people to buy stocks.
The yield on the 10-year Treasury note, a benchmark for many kinds of loans, fell to 2.56 percent from 2.61 percent late Tuesday. The yield has risen sharply in the past week as traders sold bonds in anticipation of the Fed’s winding down its bond-buying program. It was 2.19 percent June 18, the day before the Fed outlined its plans.
The recent spike worried investors that a sudden increase in mortgage rates could undermine the recovery in the U.S. housing market. Some homebuilder stocks rose following the easing in interest rates. Lennar rose 66 percent, or 1.8 percent, to $35.88, and Toll Brothers rose 34 cents, or 1.1 percent, to $32.30.
Fed Chairman Ben S. Bernanke set off a stock market rout a week ago when he said the Fed could rein in the bond-buying program starting as early as this year. The Dow lost a total 560 points on Wednesday and Thursday. The Dow has gained back only about 100 points since that plunge.
It wasn’t that investors were surprised that the Fed will pull back on its stimulus programs: Almost everyone expects that to happen eventually. It was more that they were worried the Fed might pull out too soon, before the stock market could stand on its own without the Fed propping it up. The Fed buys $85 billion worth of bonds every month.
Chip Cobb, senior vice president of BMT Asset Management in Bryn Mawr, Pa., predicted a volatile summer for the market, noting that companies will start to report earnings en masse in early July. Friday is the last trading day for the second quarter.
“We’re not seeing any significant bottom-line growth,” Mr. Cobb said. “It’s all been cost-cutting measures.”
Other Fed officials have scrambled to reassure investors that the central bank won’t pull out of stimulus measures until it’s sure the economy can handle it. Dallas Fed President Richard W. Fisher and Richmond Fed President Jeffrey M. Lacker are both scheduled to testify at a Capitol Hill hearing of the House banking committee Wednesday morning. While the Fed isn’t the topic — how to prevent bank bailouts is — either could take the opportunity to speak on where he thinks Fed policy should go.
Markets were higher in Europe. Benchmark indexes rose 2 percent in France and 1.8 percent in Spain. Borrowing costs fell sharply for Spain and Italy as investors bought European government bonds.
At 1.8 percent, U.S. economic growth for 2013 would be less than in 2010 or 2012, and in line with 2011. And while investors are glad for growth — after all, the U.S. economy shrank in 2008 and 2009 — most say they would like to see an annual rate of 3 percent or 4 percent before they can feel comfortable about the pace of the economic recovery.
Gold for August delivery fell $40, or 3.2 percent, to $1,234 an ounce. Gold has fallen 26 percent this year as investors’ fears of inflation failed to materialize.
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