Tim Paradis – “Wall Street advances after oil declines”

http://biz.yahoo.com/ap/080806/wall_street.html

Wall Street advances after oil declines
Stocks rise as drop in oil offsets unease over Freddie Mac; Cisco helps lift tech names

Tim Paradis | August 6, 2008

Wall Street logged another winning day Wednesday as a drop in oil prices and a better-than-expected profit report from technology bellwether Cisco Systems Inc. helped corral the market’s worries about the financial sector.

Oil extended its slide into a third day. Light, sweet crude settled down 59 cents at $118.58 a barrel on the New York Mercantile Exchange after the government reported a jump in domestic inventories; oil is now down about $30 from its record high of $147.27 reached July 11.

Cisco rose more than 5 percent after the networking equipment company late Tuesday posted earnings that narrowly topped Wall Street’s forecast. The report helped buoy sentiment and lifted the technology-laden Nasdaq composite index.

The buying came a day after Wall Street had a huge rally — an advance that in early trading Wednesday looked like it might not hold. Investors began the day fearing more industrywide write-downs of bad home loans after mortgage financier Freddie Mac reported a larger-than-expected second-quarter loss. But a reversal in oil prices, continuing a decline that propelled stocks sharply higher Tuesday, helped calm investors about the forces tugging at the economy.

The well-being of Freddie Mac and sister company Fannie Mae is a big concern on Wall Street as the government-chartered companies hold or back nearly half of all U.S. mortgage debt. The companies have lost billions of dollars due to failed loans over the past year; the federal government has pledged to help both companies with larger lines of credit or stock purchases if necessary.

Lincoln Anderson, chief investment officer and chief economist at LPL Financial in Boston, said that while the troubles in the financial sector aren’t over, investors are somewhat emboldened by the slide in oil and signs of strength in the dollar.

“I think we’re getting into better territory. I’ve been very much focused on the fall in oil prices as a necessary ingredient to avoid recession. To the extent that we’re getting that that’s just great,” he said.

The Dow Jones industrial average rose 40.30, or 0.35 percent, to 11,656.07, after having been down nearly 100 points early in the session. The gain brought the Dow’s two-day advance to about 370 points. The blue chips soared Tuesday on the drop in oil, and also in response to a reassuring economic statement from the Federal Reserve.

Broader stock indicators also advanced again Wednesday. The Standard & Poor’s 500 index rose 4.31, or 0.34 percent, to 1,289.19, and the Nasdaq rose 28.54, or 1.21 percent, to 2,378.37.

Bonds slipped as more investors left the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 4.05 percent from 4.02 percent late Tuesday.

The dollar rose to eight-week highs against the euro and seven-month highs against the yen, while gold prices fell.

Investors showed enthusiasm for technology names Wednesday. Cisco rose $1.28, or 5.7 percent, to $23.93 after its report. Microsoft Corp., one of the 30 stocks that make up the Dow, rose 81 cents, or 3.1 percent, to $27.02.

But financials remained a weak spot. Freddie Mac fell $1.55, or 19 percent, to $6.49, while Fannie Mae fell $2, or 15 percent, to $11.60. Freddie Mac, which substantially increased its reserves for souring loans, lost about three times what Wall Street expected on a per-share basis. The company also announced that it expects to cut its third-quarter dividend.

Other financial stocks also fell as investors worried about the sector. Citigroup Inc. slipped 22 cents to $19.70, while Wachovia Corp. fell 65 cents, or 3.4 percent, $18.41.

J. Stephen Lauck, chief executive and portfolio manager at Ashfield Capital Partners in San Francisco, said impressions about the health of the financials will continue to shape investor sentiment.

“It’s a very cautious environment,” he said. “What we need in this market is for the financial stocks to stabilize. I think they’ll stabilize well before the housing market fixes itself.”

Lauck said the housing sector will likely take several years to recover. In the meantime, the drop in energy prices, as well as a retreat in gold and other commodities, is offering investors some solace.

“This commodity pullback is very timely because I think it does take that stress point away from the market,” Lauck said.

But even with the pullback in oil prices, investors appeared cautious about placing bets on companies that do best when consumers are in a mood to spend. Rising commodity costs have hurt consumers, whose spending accounts for more than two-thirds of U.S. economic activity. Among consumer discretionary stocks, TJX Cos., parent of the T.J. Maxx and Marshalls retail chains, fell 91 cents, or 2.6 percent, to $34.47.

Sprint Nextel fell $1.21, or 14 percent, to $7.34 after posting a second-quarter loss on severance and other costs.

Advancing issues outnumbered decliners by about 9 to 7 on the New York Stock Exchange, where consolidated volume came to a relatively light 4.77 billion shares, compared with 5.35 billion Tuesday.

The Russell 2000 index of smaller companies rose 4.86, or 0.67 percent, to 725.90.

Overseas, Japan’s Nikkei stock average rose 2.63 percent. Britain’s FTSE 100 rose 0.58 percent, Germany’s DAX index added 0.65 percent and France’s CAC-40 jumped 1.41 percent.

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Published in: on August 7, 2008 at 9:30 PM  Leave a Comment  

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