Stocks finished trading narrowly mixed in a thin, choppy session Wednesday. The Dow and S&P 500 indexes halted two-day losing streaks, helped by a rally in tobacco shares. Federal Reserve Chairman Alan Greenspan's cautiously optimistic comments on the economy failed to provide momentum.
The Dow Jones industrial average finished ahead 25.07 points, or 0.3%, to 8,516.43. The broader Standard & Poor's 500 stock index gained 3.69 points, or 0.4%, to 923.42. The tech-heavy Nasdaq composite index was lower by 1.22 points, or 0.08%, to 1,489.87.
Gains in Altria Group (MO), Hewlett-Packard (HPQ), and McDonald's (MCD) underpinned the Dow average, while weakness in the biotech sector hurt the Nasdaq.
Greenspan testified Wednesday morning before the Joint Economic Committee of Congress about the state of the U.S. economy and economic policy. The Fed chairman said faster growth rates were "not unreasonable," but that the timing of an economic recovery remains uncertain. Greenspan said there was increased risk of an "unwelcome substantial fall" in prices. He said deflation is a "minor" threat but not imminent.
"Greenspan has gone to some length to suggest that the Fed is still waiting for 'clean' economic data to filter through following the depressing initial effects of the Iraq-war distortions," notes economic research firm MMS International. "This suggests that the Fed is in no rush to alter policy, at least from the standpoint of assessing the economy, which has been characterized as generally positive."
The only economic report of note expected for the rest of the week is Thursday's weekly initial jobless claims reading. MMS forecasts a rise in claims of 3,000 to the 420,000 level for the week ended May 17.
On Wednesday, fears of terrorism lingered. Qatar-based news channel Al-Jazeera aired an audio tape purportedly recorded by an influential member of Al-Qaeda. A day before, the Homeland Security Dept. elevated the terror alert level to "orange" (high).
Tobacco stocks soared Wednesday after a Florida court reversed a $145 billion decision against the industry. Shares in Dow component Altria Group (MO), the parent of Philip Morris USA, increased more than 9%. Shares in R.J. Reynolds (RJR) increased more than 5%.
Restaurant and food stocks rebounded somewhat on Wednesday, after slipping on Tuesday's report of a case of bovine spongiform encephalitis -- "mad cow disease" -- in Canada. Shares of fast-food chain McDonald's (MCD) finished trading slightly higher.
A strong quarterly earnings report from computer giant Hewlett-Packard (HPQ) after Tuesday's close sent shares up on Wednesday, but did not compensate for overall weakness in the technology sector. Biotech companies, hurt by a sector downgrade from Morgan Stanley, led the way down.
On the commodities front, oil prices rose Wednesday on anxiety caused by recent terrorist attacks in Saudi Arabia. Also pushing up oil prices, U.S. government data showed slow growth in fuel stocks.
Prudential Securities market analyst Larry Wachtel expects trading to be light for the rest of the week in advance of the long Memorial Day weekend. "On Thursday, business begins to phase down," he says.
Among companies expected to report earnings on Thursday: retailers The Gap (GPS) and Foot Locker (Z), and technology companies Ciena (CIEN) and Novell (NOVL).
Treasuries ended mixed Wednesday, with prices giving back much of their gains on profit taking ahead of the long weekend. The 30-year note remained in the green. The benchmark 10-year note's yield had fallen to 47-year lows earlier in the session.
"Greenspan's optimism on growth going forward did diminish rising hopes of a June 25 cut, or even an intermeeting easing," noted MMS.
MMS does not anticipate Thursday's initial jobless claims data -- the lone expected economic report of note -- to move traders. "The report is unlikely to convince anyone that conditions in the labor market are anything but weak," says MMS. A forecasted 3,000-claim uptick would mark the "fourteenth consecutive week that claims have held above the 400,000 level, a performance not rivaled since 1992."
European markets finished trading mixed. London's FTSE index was down 35.2 points, or 0.89%, to 3,936.4, amid speculation that the Monetary Policy Committee would cut rates at its next meeting. The biggest contributors to the decline in the FTSE included GlaxoSmithKline, AstraZeneca, BP-Amoco, and Lloyds.
In Paris, the CAC-40 index rose 3.94 points, or 0.14%, to 2,881.2. In Frankfurt, the DAX index decreased 11.68 points, or 0.41%, to 2,827.25.
In Asia, stocks finished mixed. Japan's Nikkei 225 index fell 40.97 points, or 0.51%, to 8,018.51. Major bank stocks rebounded, while some exporters and blue-chip stocks fell on economic worries. Meanwhile, Hong Kong's benchmark Hang Seng index increased 9.4 points, or 0.1%, to 9,059.8.