Stocks ended Monday’s trading almost unchanged as investors looked for fresh signs to keep the upward momentum going. Fed Chairman Ben Bernanke’s remarks that interest rates are likely to remain low hurt the dollar, which in turn helped stocks of companies that do business overseas.
Lower interest rates and a sliding dollar have helped spur the nine-month old rally in stocks. The weak dollar has encouraged investors to park their funds in high-yielding assets such as stocks and commodities. The S&P 500 index, in its sharpest rally since the Great Depression, is up 63% since hitting a 12-year bottom in March.
On Friday, an unexpected drop in unemployment rate and easing worries over a possible default by Dubai World had sent US stocks higher. However, the better-than-expected jobs report gave rise to concerns that an improving employment picture would mean higher interest rates.
The Dow Jones industrial average rose 1.21 points, or about 0.1%, to 10,390.11. The broader Standard & Poor's 500 index fell 2.73 points, or 0.3%, to 1,103.25 and the Nasdaq composite index fell 4.74 points, or 0.2%, to 2,189.61. On the New York Stock Exchange, advancing stocks outpaced those that fell by an 8-to-7 margin on volume of 1.06 billion shares. The CBOE Vix jumped 4% on Monday to 22.10, reflecting investor skittishness.
Fed Chairman Bernanke’s comments yesterday did little to brighten hopes of economic recovery, as he warned that it remains too early to determine whether the recovery will last. Bernanke said "formidable headwinds" in the form of high unemployment, watchful consumers and tight credit are still present, nipping in the bud beliefs that interest rate increases might come sooner than expected and exit strategies commenced. Bernanke reiterated the Fed's commitment to low rates for an "extended" period. Following his speech the US dollar fell, closing down 0.2% at 75.73 against a basket of currencies.
Financial sector shares led the decliners, falling 1.4% on dampened recovery expectations, with oil and gas, industrials, consumer goods, and health care shares all retreating 0.2%. Telecommunications (+1.8%), and utilities (+0.8%) led the gainers in yesterday's trading. Sixteen of the thirty DJIA components advanced, led by Boeing's (NYSE:BA) 2.1% increase, Verizon's (NYSE:VZ) 1.7%, AT&T's (NYSE:T) 1.3%, and Wal-Mart's (NYSE:WMT) 1.3%. On the downside, Bank of America (NYSE:BAC) shed 2.4%; Pfizer (NYSE:PFE) 2.3%; Merck (NYSE:MRK) 1.9%, and Caterpillar (NYSE:CAT) 1.3%.
Yesterday bellwether FedEx (NYSE:FDX) sharply raised its second quarter earnings guidance reflecting increased international and ground shipments. The company said it now sees earnings of $1.10 a share, compared with its previous projections of 65 cents to 95 cents a share.
After Friday’s fall, Gold prices recovered some ground yesterday as Bernanke's remarks dimmed prospects for rate increases, sending the greenback lower. Oil remained near $74 per barrel on projections of another build in crude supplies and limited recovery expectations.
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