Cooling tensions push stocks higher
NEW YORK » A sharp drop in oil prices helped Wall Street extend its rally for a third straight session yesterday, with strong earnings from Hewlett-Packard Co. also giving stocks a modest lift.
Higher U.S. energy stockpiles and the continued cooling of Middle East tensions fueled the drop in crude futures. A barrel of light crude settled at $70.06, down $1.83, on the New York Mercantile Exchange.
Wall Street also welcomed a slight drop in the index of leading economic indicators, which is designed to forecast future economic conditions. The index fell 0.1 percent in July after a 0.1 percent increase in June, suggesting the economy could weaken in coming months. Investors are hoping for a modest slowdown in economic growth to keep inflation pressures at bay.
Some of the day's news was less helpful, with slow sales at Sears Holdings Corp. dragging its stock down and other large retailers reporting slower sales. Yet investors remained enthusiastic after economic data Tuesday and Wednesday showed a sharp drop-off in inflation risk.
"Right now, as opposed to three weeks ago, you've got investors willing to buy on some good news, rather than simply not sell on good news," said Chris Johnson, manager of quantitative analysis at Schaeffer's Investment Research. "The mind-set has changed here, and you're seeing that today as we still go higher after these past two days."
The Dow Jones industrial average rose 7.84, or 0.07 percent, to 11,334.96. The Dow gained nearly 229 points in the previous two sessions.
Broader stock indicators also advanced. The Standard & Poor's 500 index added 2.05, or 0.16 percent, to 1,297.48, and the Nasdaq composite index climbed 8.07, or 0.38 percent, to 2,157.61. Including Monday's modest gains, yesterday marked the first four-day stretch of gains for the two indexes since March.
Concurrent rallies in stocks and bonds are rare, since investors in each market buy for different reasons. Bonds generally move higher as investors hedge against a slower economy, while stocks climb based on strong expectations for corporate profits, which need a strong economy to grow.
This week, however, investors in stocks and bonds bid both higher, hoping for the same thing -- a "soft landing," engineered by the Federal Reserve's interest rate policy, in which the economy does slow so that inflation is contained, but grows enough to keep corporate profits strong.