Wall Street rebounded Wednesday, with the stock market posting solid gains, as investors reappraised the market a day after the Federal Reserve’s assessment of the economy prompted a sell-off.
The advance reflects investors’ overall optimism about the economy and corporate earnings, although they are concerned that rising borrowing and energy costs could weigh on both, analysts said.
“I think after yesterday’s sell-off, when we turned off the lights and came back in the morning, we got a chance to say, ‘You know what? We’ve overdone it here,’” said Arthur Hogan, chief market analyst at Jefferies & Co.
Stocks sold off sharply Tuesday, pulling the Dow Jones industrial average down almost 100 points, after the Fed suggested more interest rate hikes would be needed to head off inflationary pressures. The Fed’s comments accompanied its decision to raise its benchmark rate a quarter percentage point to 4.75 percent.
But at the close of Wednesday’s trading session the Dow Jones industrial average was up 61.16 points, or 0.55 percent, while the broader Standard & Poor’s 500-stock index added 9.66 points, or 0.75 percent. The Nasdaq composite index gained 33.32 points, or 1.45 percent.
“Clearly yesterday I think there was a response to where the Fed was. There was a hope that they [the Fed] would talk about bringing an end to rate increases, that a balance had been achieved,” said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. “They didn’t get that, but it’s not cataclysmic because you still have the broader picture.”
Wednesday’s gains continue to reflect the concerns of investors and rising bond yields that siphon away interest in stocks. Bond yields, which shot higher Tuesday, rose slightly to 4.80 percent.
“What we’re seeing here is a market that’s just waiting to assess economic data later in the week and, of course, moving into the earnings season,” commented Peter Cardillo, chief market analyst at S.W. Bach & Co. In the longer term, Cardillo added, investors are wondering how long the economy and earnings can sustain their momentum if interest rates continue to move higher.
But in the short run mutual funds and other institutional investors close their books for the quarter at week’s end. With the decline in stocks yesterday, some large investors likely returned to the market Wednesday to adjust their portfolios and buoyed stocks Cardillo said.
Wednesday’s stock market rebound came despite another boost in crude oil prices, which rose back above $66 a barrel.
“The market continues to raise the level of tolerance it has for high energy prices,” Hogan said. But “I think if we spend more time here at this level, energy prices will become an issue.”
The overall rise in stocks Wednesday came despite a drop in the shares of General Motors Corp., after it said late Tuesday it would again restate its financial reports, this time for the financing unit it is trying to sell.
In addition to restating its financial results from 2000 to 2004 Tuesday, GM said it is restating financial results for General Motors Acceptance Corp. from 2003 through the third quarter of 2005, said it was uncertain if it would complete the sale of a majority stake in the unit.
Shares of GM, a Dow component, fell 60 cents, or 2.6 percent, to $22.15 in trading on the New York Stock Exchange.
Gainers included Sun Microsystems Inc., whose shares rose 22 cents, or 4.37 percent, to $5.25 following an upgrade by Morgan Stanley.
Lear Corp. also rose after the auto interiors maker said it would suspend its dividend, had refinanced its debt and announced it will contribute most of its European interiors business to a joint venture. Its shares rose $1.54, or 9.09 percent, to $18.49.
Shares of Boston Properties Inc. also rose, gaining $6.25, or 6.90 percent, to $96.87, following the announcement that it will be added to the S&P 500 after trading closes on Friday. Kimco Realty Corp., which will be added to the index on Monday, also saw its shares rise, up $2.65, or 6.84 percent, to $41.40.
Stocks generally rise when they are added to indexes because index-based mutual funds pick up the shares to keep their portfolios in line with index components. But Caterpillar Inc. fell $1.20, or 1.60 percent, to $73.67 after UBS cut its rating on the stock.
Overseas, Japan’s Nikkei stock average rose 1.5 percent. Britain’s FTSE 100 gained 0.4 percent, Germany’s DAX index also rose 0.4 percent and France’s CAC-40 finished up 0.6 percent.