Stocks Gain Ahead of Fed Meeting
With very little fundamental news to cling to, stocks spent most of Monday's session meandering sideways, though the major indexes did manage to close in the plus column. Most traders braced for tomorrow's Federal Reserve meeting, awaiting clarification of the Fed's views on inflation and deflation, and hoping for reassurances that the economy is on track for a strong recovery and that rates will stay low.
The Dow Jones industrial average gained 26.2 points, or 0.29%, to 9,217.35. The broader Standard & Poor's 500 index was up 3 points, or 0.31, to 980.59. Meanwhile, the tech-heavy Nasdaq composite index added 17.48 points, or 1.06%, to 1,661.51.
Some tech stocks got a boost from positive comments from analysts. Oracle (ORCL ) was higher after Merrill Lynch upgraded the stock to buy from neutral. In other news, Oracle extended its tender offer for PeopleSoft (PSFT ) to midnight on Sept. 19.
Another software maker, Adobe Systems (ADBE ), jumped after USB Piper upgraded the shares to strong buy from outperform. And semiconductor stocks bounced back from Friday's slide.
Cyclical names were also strong. Late in the afternoon, Dow cyclical component 3M (MMM ) announced a 2-for-1 stock split, payable to shareholders of record as of Sept. 22. The stock closed near a 52-week high of $141.90.
Financial stocks, though, were weak. MetLife (MET ) shares fell after the company restated its second-quarter operating EPS results, to 84 cents from 89 cents, reflecting certain expenses it described as "improperly deferred" at its New England Financial unit.
Wal-Mart (WMT ) shares barely budged after the retailer reported that back-to-school sales are off to a good start.
The highlight Tuesday is the Federal Open Market Committee meeting. The meeting, though, is widely expected to be a non-event, with the Fed holding the funds rate steady at 1% amid ongoing risks of an unwanted drop in inflation, says economic research outfit MMS International. The Fed is also expected to give a terse statement indicating a balanced outlook on the economy amid minor fears of an unwanted fall in prices, says MMS.
MMS reports that there is rising speculation that Fed Chairman Alan Greenspan will tweak the statement to encourage beliefs that rates will be kept low well into the recovery. "Indeed, many look for Greenspan to impart a more dovish spin, especially after contradictory Fedspeak, supply, and signs of an improving economy more than erased the drop in rates since March," says MMS.
Traders, however, may prefer to follow tangible numbers on the economy's progress, which this week will include retail sales on Wednesday; trade balance, producer prices, and jobless claims on Thursday; and industrial production, consumer prices, and consumer sentiment on Friday. Investors will also get a few key earnings reports this week, including results from chip equipment maker Applied Materials (AMAT ), mega-retailer Wal-Mart (WMT ), and computer merchant Dell (DELL ).
Fed fears extended the slide in Treasuries Monday as the bond market set up for a more optimistic tone on the economy from the FOMC Tuesday, says MMS International. The 10-year note lost nearly a point, albeit on light volume, before some late short covering pared losses into the close. Bonds had begun the day on soggy footing as Asian and European traders followed through on Friday's selling out of New York, reports MMS. The yield on the 10-year note rose to 4.37%.
European stock markets were higher. In London, the Financial Times-Stock Exchange 100 added 28.9 points, or 0.7%, to 4,176.7. In Germany, the DAX Index was up 7.34 points, or 0.22%, to 3,339.58, recovering from earlier losses after a 2.5% decline in June exports signals that Germany may be falling into a recession. In France, the CAC 40 was up 22.83 points, or 0.72%, to 3,188.32.
In Asia, major stock indexes finished higher. Japan's Nikkei index finished up 160.27 points, or 1.72%, to close at 9,487.8. Many Japanese investors are gone for "Obon" summer holidays, but this turned out to be market positive with sellers absent as well. Shares of machinery makers jumped, helped by the 2.4% increase in Japanese machinery orders in June released last Friday.
Meanwhile, Hong Kong's Hang Seng index gained 148.32 points, or 1.49%, to close at 10,093.54.