August 11, 2022

Stocks & Bonds: After Big Early Gains, Rally Fizzles a Bit

Stocks stopped a three-day slide on Wednesday, but ended well off the day’s highs as investors took the suggestion of further Federal Reserve stimulus as a mixed blessing.

Stock index futures dropped after Moody’s Investors Service said it might cut the United States’ triple-A rating because of the chance that the country’s debt ceiling might not be raised by the Aug. 2 deadline. Concerns about the debt ceiling have been a headwind for equities. Futures initially slumped on the news, though they later recovered some losses.

“The rating agencies were so slow to respond to anything in 2007 and 2008 that now they’re overly quick to respond,” said Paul Schatz, president and chief investment officer of Heritage Capital in Woodbridge, Conn., who added that he felt there was “no chance” of a default.

“I don’t think this is a big deal and I don’t think it will move the needle for long,” Mr. Schatz said. “This will be a short-term issue, no more than half a day.”

In Wednesday’s session, the three major stock indexes rose more than 1 percent at their peaks after Ben S. Bernanke, chairman of the Federal Reserve, suggested that the Fed would consider additional measures to support the economy if the outlook got worse. Energy and materials stocks led gains, but the rally fizzled in afternoon trading.

“Bernanke’s comments were a positive this morning, but we had a little too much happiness early on,” said Richard Sichel, chief investment officer at the Philadelphia Trust Company. “The comments were not upbeat by any means, and obviously, no one wants the economy to get to the point where more stimulus is needed.”

The Fed’s $600 billion bond-buying effort, known as QE2, has contributed to equity gains since September.

In testimony to the House Financial Services Committee, Mr. Bernanke said “the recent economic weakness may prove more persistent than expected,” implying a need for additional policy support.

Stock investors had put a low probability on any more stimulus from the Fed, but June’s dismal jobs report altered some perceptions.

The Dow Jones industrial average rose 44.73 points, or 0.36 percent, to 12,491.61. The Standard Poor’s 500-stock index gained 4.08 points, or 0.31 percent, to 1,317.72. The Nasdaq Composite index advanced 15.01 points, or 0.54 percent, to 2,796.92.

After the closing bell, Yum Brands, the fast-food chain, rose 2.3 percent to $56.88 in extended trading after it reported a better-than-expected profit and raised its full-year profit view. Shares of the hotel chain Marriott International fell 4.3 percent to $35.55 after the bell after the company reported results.

During the regular session, share of the News Corporation jumped 3.8 percent to $15.93. It was the Nasdaq’s most active issue after the company announced that it had withdrawn a $12 billion bid to buy the 61 percent of British Sky Broadcasting it did not already own. Volume in the media company’s stock was its highest since Dec. 17, 2004, when it was officially added to the S. P. 500.

The News Corporation is at the center of accusations that one of its tabloid newspapers committed criminal acts. Energy and material stocks were the top gainers, though they were off their highs as crude oil cut its gains. The S. P. energy sector index rose 0.7 percent, while August crude futures gained 62 cents, or 0.6 percent, to settle at $98.05 a barrel. Baker Hughes was one of the top energy sector gainers, rising 3.3 percent to $74.83.

The S. P. materials sector index rose 0.8 percent, with Freeport-McMoRan Copper Gold up 2 percent to $54.89 on heavy volume.

Shares of JPMorgan Chase rose 0.6 percent to $39.62 while Google climbed 0.8 percent to close at $538.26. JPMorgan is scheduled to report results on Thursday morning and Google after the market’s closing bell.

Wall Street got an early boost from overseas data that showed China’s economy grew faster than expected in the second quarter, but there was still caution over developments in Europe. Moody’s downgraded Ireland’s debt to junk late on Tuesday and said that Ireland, like Greece, would probably need a second bailout. Irish bond yields jumped to record highs.

Electronic Arts, the video game publisher, is buying PopCap Games in a deal worth up to $1.3 billion as it tries to build its social and casual games portfolio. Shares of Electronic Arts shed 1.1 percent to $23.91. [Interest rates were steady. The Treasury’s benchmark 10-year note fell 2/32, to 102 2/32, and the yield was unchanged at 2.88 percent.

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