Stocks Hold to Upside
Updated from 11:11 a.m. EDT
Stocks in the U.S. continued their climb Wednesday as the morning's economic data suggested the U.S. economy is holding up a bit better than had generally been thought, although investors remained cautious ahead of the
Federal Reserve's
looming interest-rate decision.
The
Dow Jones Industrial Average
jumped 113 points, or 0.9%, to 12,945, and the
S&P 500
was rising 7 points, or 0.5%, at 1398. The
Nasdaq Composite
tacked on 18 points, or 0.8%, to 2445.
Buyers had an edge from the outset after the Commerce Department issued a preliminary gross domestic product report that showed growth of 0.6% in the first quarter, a hair higher than consensus and flat with last quarter. GDP numbers often undergo revisions. If they remain substantively accurate, though, they would indicate that the U.S. economy, at least for now, has
, contrary to what many economists and consumers previously believed.
"Call it a banana, call it ice cream, call it a monkey, but you can't call it a recession," said Richard Yamarone, chief economist with Argus Research, who blames the media for much of the recessionary angst that has spread through the American public over the past few months.
"In order for the economy to be in recession there needs to be, at the very least, one negative quarter in economic growth," Yamarone said. "To date, that hasn't occurred. Claiming recession while economic output is expanding is like diagnosing a patient with the sniffles as having pneumonia. It's incorrect, it's irresponsible, and in our opinion, just another example of election-year fear-mongering."
Marc Pado, U.S. market strategist with Cantor Fitzgerald, pointed out that the housing slump alone dragged on the GDP by 1.3%. "Add that back in, and it wouldn't be a robust economy, but it's not the end of the world at just 2%. So there's a portion of the economy that's in a recession, but it's a sector-related situation."
Pado also believes the Bush administration's tax-rebate checks should pull the second quarter from the brink as inventories rebuild and exports continue to perform well. Further, he added, it's unlikely housing will maintain its harrowing rate of decline. "So where's your recession?" he said.
Yamarone conceded that consumers are facing "great difficulties" in spiking food and energy prices, an uncertain jobs climate and sinking home prices. Still, he believes the economy will "narrowly sidestep recession," barring any other financial calamities, especially now that the stimulus checks are arriving in the first month of the quarter rather than later on.
"We'll just have to wait for banks to start lending again," Yamarone added. "Because if you're a bank and you're not lending, what are you doing?"
As for market action, regardless of what occurs in the first few hours of the trading day, the culmination of the session may well be determined by what the central bank decides at the conclusion of its two-day gathering. The Federal Open Market Committee, the policymaking arm of the Fed, is due to post its interest-rate decision at 2:15 p.m. EDT, and its statement should also clue investors in to whether the Fed will give its rate-easing cycle a rest.
The central bank has pulled the fed funds target rate down by three percentage points since September in an effort to rev up the credit-crunch-battered U.S. economy, which decelerated sharply last quarter and continues to show signs of distress in unemployment numbers, manufacturing declines and sliding consumer spending.
At the same time, a relentless upward drive in commodities prices have spurred considerable inflationary worries, and two members of the FOMC dissented from the last rate-cut decision for that very reason. Nevertheless, futures were recently pricing in a high likelihood that the fed funds target rate, which currently stands at 2.25%, will be decreased by another 25 basis points. The discount rate, or that at which the Fed lends money to banks, is currently at 2.50%.
"I'm a big believer that this has been a large, orchestrated stimulative effort to add liquidity back to the banks by cutting the fed funds rate, and allowing for a broader spread so the banks can make handle losses and not go under," said Pado. "So I think the Fed still should do the 25 and then use their rhetoric to shore up the dollar and say, 'We're done.'"
"Inflation may run a little bit higher," he added, "but they're willing to let inflation run if they can avoid recession."
Elsewhere on the economic docket, the April Chicago Purchasing Managers' index came in at 48.3, indicating a slight contraction in Midwest factory activity. That's a bit better than the 47.5 reading that economists were expecting, and nearly unchanged from March numbers. The index's breakeven point is 50.
Also, ADP said that nonfarm payrolls rose by 10,000 workers in April, far better than the consensus forecast for a loss of 60,000 jobs, and up from a revised gain of 3,000 jobs in March. The government's official jobs report should come out Friday, and the two reports don't always agree.
On the corporate side,
General Motors
(GM) - Get Report
helped keep the Dow aloft even though the carmaker widened its first-quarter shortfall. Stripping out certain items, GM topped Thomson Financial's $1.60 analyst targets with a loss of 62 cents a share. The stock soared 13.2%.
Fellow industrial
Proctor & Gamble
(PG) - Get Report
meanwhile posted rising first-quarter earnings of $2.71 billion, or 82 cents a share, edging past the consensus analyst estimate by a penny a share. P&G also bumped up the lower end of its current-quarter outlook by 2 cents a share. The stock rose 3.6%.
Another Dow component,
Citigroup
(C) - Get Report
, dropped 2.7% after the banking behemoth announced after the prior market close that it plans to offer $3 billion in stock in order to shore up its dwindling cash pile.
Elsewhere,
Ingersoll-Rand
(IR) - Get Report
tracked up 6.2% on a surging first-quarter profit from continuing operations, but
International Paper
(IP) - Get Report
said rising commodities prices, among other things, helped pull down its first-quarter results, and shares were sliding 4.8%.
Separately, IT-services firm
Savvis
(SVVS)
was downgraded by at least three analysts after swinging to a first-quarter loss and chopping down its full-year sales forecast. Shares were plummeting 23.9%.
Among other quarterly reports,
Alcatel-Lucent
(ALU)
and
Garmin
(GRMN) - Get Report
missed estimates, bringing shares down 4.7% and 9.6%, respectively, while
Kraft
(KFT)
guided estimates higher for the year. Kraft shares were up 3.4%.
Time Warner
(TWX)
was slightly worse than expected with its profit. Shares had a positive start as shareholders seemed to commend the media company's decision to split off its cable unit,
Time Warner Cable
(TWC)
, but recently the stock was off 0.7%.
Crude oil saw some choppy action after the Energy Information Administration said crude stockpiles rose by 3.8 million barrels last week, and was lately down $1.94 at $113.69 a barrel. Gold futures were losing $7.30 at $869.50 an ounce.
The U.S. dollar firmed fractionally against the euro to $1.5556 while adding 0.5% against the yen at 104.52.
Treasury prices were little changed recently, having pulled back from more substantial early gains. The 10-year note ticked up just 1/32 in price to yield 3.82%, and the 30-year bond was flat in price, yielding 4.55%.
The major overseas markets were mixed. In Asia, Tokyo's Nikkei 225 lost 0.3% overnight to 13,850, and Hong Kong's Hang Seng Index shed 0.6% at 25,755. As for Europe, the FTSE 100 in London, was dipping, but Germany's Xetra Dax lifted by 0.9%. The Paris Cac was up 0.4%.