Soothing words about the energy markets from Federal Reserve chairman Alan Greenspan, who reassured investors that the recent rise in oil prices is unlikely to damage the economy, lifted stock prices Tuesday. Oil futures fell sharply on the news.
Speaking before a group of U.S. petrochemical producers, Greenspan said more refining capacity was needed around the world, but that energy demand was already starting to soften, a trend that could help bring prices down. That assessment of the oil situation, investors believed, could keep the Fed from raising rates aggressively, since it appeared unlikely that inflation would accelerate due to higher prices.
Analysts, however, said that for the short-term, Greenspan’s comments didn’t change the fact that oil, which traded above $58 a barrel on Monday, remains near record highs, and interest rates are on the rise, gradually or not. The result was a trendless session on Wall Street that showed only a modest response to Greenspan’s comments.
“Nothing has really changed for the market. You have rising rates, decelerating earnings growth and you’ve got energy prices,” said Russ Koesterich, senior portfolio manager at Barclay’s Global Investors in San Francisco. “Energy continues to be a drag on the market because, sure, you’re down $1 a barrel today, but these prices are still high and they’ll start to bite into consumer spending at some point.”
The Dow Jones industrial average finished the day up 37.32 points, or 0.4 percent, while the broader Standard & Poor’s 500-stock index was up 5.27 points, or 0.5 percent. The technology-rich Nasdaq composite index gained 8.25 points, or 0.4 percent.
Crude oil futures dropped sharply after Greenspan’s remarks, with a barrel of light crude settling 97 cents lower at $56.04 on the New York Mercantile Exchange. Bonds were down narrowly, with the yield on the 10-year Treasury note rising to 4.47 percent from 4.46 percent late Monday.
Some investors sought bargains after March’s losses in the stock market. Many were still ambivalent and preferred to wait for next week, however, when first-quarter earnings reports start in earnest. Also, oil prices have not fallen enough to give investors a sense of lasting relief, even with Greenspan’s comments.
“I think you’re getting at least a few investors, with an asset allocation point of view, seeing these lower prices and getting back into the market,” said Joseph Battipaglia, chief investment officer at Ryan Beck & Co. “The underlying economic fundamentals are pretty good, but you still have everyone’s favorite ghost — oil — making things very tentative.”
In corporate news, Morgan Stanley was down $1.85 at $56.45 after the group of dissident shareholders and former executives supported former President Robert Scott as chief executive to replace Philip Purcell. The company’s decision, announced late Monday, to spin off its Discover Card business also failed to meet with Wall Street’s approval. Lehman Brothers downgraded Morgan Stanley’s stock after the announcement.
Pfizer Inc. cut its 2005 profit forecasts by 6 percent and unveiled a four-year, $4 billion cost-cutting program. Implementing the program could cost up to $6 billion through 2008, however. Pfizer gained 97 cents to $26.90.
Verizon Communications Inc. rose 12 cents to $35.77 after the Dow component said it will drop its $7.5 billion bid for MCI Inc., if MCI says the recent $8.9 billion counter-bid by Qwest Communications International Inc. is superior. Qwest rose 4 cents to $3.86, while MCI was down 7 cents at $25.01.
Analysts at Lehman Brothers cut their profit forecasts for The Home Depot Inc. for the quarter, 2005 and 2006, claiming that poor weather in the Northeast, deflationary trends in lumber prices and rising energy costs would all weigh on the company’s earnings. Home Depot nonetheless gained 32 cents to $38.23.
Online music service Napster Inc. raised its quarterly profit forecasts for the second time in a month due to better-than-expected sales and subscriptions. Napster climbed 57 cents, or 9.2 percent, to $6.74.
Overseas, Japan’s Nikkei average rose 0.92 percent. In Europe, Britain’s FTSE 100 was up 0.94 percent, Germany’s DAX index gained 0.49 percent, and France’s CAC-40 climbed 0.88 percent.