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Stocks rally to multiweek highs
Wall Street looks past Katrina after oil pulls back sharply
By Mark Cotton, MarketWatch
Last Update: 4:41 PM ET Sept. 6, 2005  [ Page 1 | 2 ]
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The Dow industrials ($INDU: news, chart, profile) ended up 141.87 points, or 1.4% at 10,589.24, offering the benchmark index its best one-day performance since July 8 when it shot up 147 points. The Dow closed out at its best level in more than two weeks.

The Nasdaq Composite ($COMPQ: news, chart, profile) rose 25.79 points, or 1.2% to 2,166.86, with the tech-rich index also putting in its best one-day gain since July 8.

The S&P 500 ($SPX: news, chart, profile) climbed 15.38 points, or 1.3% to 1,233.30, the best one-day rise for the broad gauge since April 21.

Both the Nasdaq and the S&P ended at three-week highs.

"I think [the gains] are largely technical and there is also a growing opinion, which I share, that the Fed is going to pause at its Sept. 20 meeting," said Michael Metz, chief investment strategist at Oppenheimer & Co.

The Federal Reserve's key short-term rate currently stands at 3.5%. Keeping interest rates at current levels would keep the cost of borrowing down for both companies and individuals. With the devastation caused by Hurricane Katrina, lending is likely to rise to fund reconstruction efforts.

The retreat in crude prices offered a further reason to bid up stocks, according to Metz: "The feeling is that we've had some sort of short-term blowoff in oil and it's going to come down a bit."

Investors got some positive news on the nation's economy. The nonmanufacturing sectors of the economy continued to expand at a robust rate in August, the Institute for Supply Management said.

The ISM services index rose to 65% from 60.5% in July, marking the 29th consecutive month of growth and the highest reading since April 2004. See full story.

On the broader market for equities, advancers outpaced decliners by nearly three to one on the New York Stock Exchange and by two to one on the Nasdaq.

Volume was relatively light with 1.42 billion shares exchanging hands on the Big Board while 1.43 billion were traded on the Nasdaq.

Flurry of broker calls on Dow stocks

Within the Dow, shares of Coca-Cola (KO: news, chart, profile) rose 1.4% to $44.52 after Bank of America upgraded the beverage giant, citing better than expected volume growth in 2005 and the likelihood of an acceleration in profit growth for 2006. See full story.

McDonald's (MCD: news, chart, profile) was one of the biggest percentage gainers among the index's components, up 2.4% at $32.66 as the fast-food giant's stock rebounded after sliding nearly 5% last week on fears that higher gasoline prices would mean fewer Americans would be eating out.

Caterpillar Inc. (CAT: news, chart, profile) fell 26 cents to $57.99 after Merrill Lynch downgraded the construction-equipment maker to neutral from buy, mainly on valuation grounds. Analyst Andrew Obin believes investors are too optimistic about the positive impact of Hurricane Katrina on Caterpillar's earnings. Since the end of August, the stock has risen 8.3%.

General Motors Corp. (GM: news, chart, profile) , another Dow component, erased early losses, shrugging off Deutsche Bank cutting the company's debt rating to sell from hold; the broker also reiterated its sell rating on the stock.

"We believe that the latest spike in gasoline prices will likely serve as a catalyst to accelerate a consumer shift away from light trucks and toward smaller, more fuel-efficient vehicles," the brokerage said.

"Given that U.S. automakers, and most publicly traded U.S. auto-parts suppliers, remain extraordinarily dependent on light trucks, we believe these companies face considerable downside risk." GM tacked on 20 cents to $33.10.

Deutsche Bank also downgraded American Axle & Manufacturing (AXL: news, chart, profile) , Dana Corp. (DCN: news, chart, profile) and Lear Corp. (LEA: news, chart, profile) , three of General Motors' leading suppliers. Shares of all three companies ended lower on the session.

Oil backs off to earlier levels

Investors took some comfort from a fresh pullback in crude prices, pressured by the release of oil from domestic and foreign reserves and by the ongoing recovery seen among some Gulf energy facilities. On its Web site, Royal Dutch Shell (RDS.A: news, chart, profile) (RDS.B: news, chart, profile) said production is now flowing from all assets operated by the company in the region.

Oil for October delivery ended down $1.61, or 2.4% at $65.96 a barrel, the first time the futures contract has closed under $66 for the first time in two weeks. See Futures Movers.

But the longer-term impact of the hurricane on the U.S. economy prompted Lehman Brothers to cut its weighting on equities to 65% from 70%.

"Hurricane Katrina appears to have increased the level of economic risk, and we believe that warrants a more modest overweight position in equities. Rising energy prices and health-care costs put the consumer under more pressure adding to the economic risk, and warranting a more modest overweight position in equities," the broker said.

Dollar, gold, bonds

The dollar traded mostly higher after a week in which it tumbled to multimonth lows against the euro and the British pound, on concern over Katrina's economic fallout.

The euro was last down 0.2% at $1.2485 but the British pound tacked on 0.2% gain to trade at $1.8447. Against the Japanese yen, the greenback turned higher at midmorning to trade at 109.66.

Gold futures ended slightly higher as traders spent the session gauging Hurricane Katrina's economic impact as well as moves in the U.S. dollar, which climbed modestly against foreign currencies. See Metals Stocks.

On the bond market, long-term U.S. Treasury prices fell, sending yields higher as stock-market gains, lower oil prices and strong data reduced the demand for lower-risk, fixed-income investments.

The benchmark 10-year note closed Tuesday down 13/32, or $3.75 per each $1,000 in securities at face value, at 101 11/32. Its yield ($TNX: news, chart, profile) rose to 4.08% from 4.03% Friday. See Bond Report.

Deals in focus

Chiron Corp. (CHIR: news, chart, profile) shares climbed 1.7% to $43.51 on hopes that Novartis may have to raise its bid to buy up the remaining 58% of the flu-vaccine manufacturer it doesn't already own.

Chiron's board rejected the Swiss drugmaker's bid of $40 a share, equating to $4.5 billion, as "inadequate." See full story.

In another deal, Capital Automotive REIT (CARS: news, chart, profile) agreed to be acquired for about $3.4 billion, including debt assumption. The deal values Capital Automotive at $38.75 a share.

The McLean, Va.-based provider of financing for automotive-related real estate properties is being bought by an undisclosed group of clients advised by DRA Advisors LLC. The company expects the deal to close in late 2005 or early 2006.

Capital Automotive shares rose 8.2% to $38.47, just short of the offer price. See full story.

Elsewhere, shares of Apple Computer Inc. (AAPL: news, chart, profile) rose more than 5.6% to $48.80 as investors bet that the company will unveil a new iPod product this week that will help extend Apple's dominance of the market for portable digital-music devices.

Other broker calls

Shares of Cisco Systems Inc. (CSCO: news, chart, profile) rose 2.7% to $18.20, buoyed by a Lehman upgrade to overweight from equal weight. The broker said that the shares have sold off around 15% since July without any material change to fundamentals and that after its latest channel checks, encouraging demand appears to have offset summer seasonality.

Colgate-Palmolive Co. (CL: news, chart, profile) shares rose 1.9% to $53.51 after Bank of America upgraded the consumer-products company to neutral from sell, saying its shares have limited downside due to a more productive use of restructuring savings, including a greater commitment to advertising and innovation.