Stock prices rose modestly but broadly Wednesday, as investors downplayed cautious remarks by Federal Reserve officials regarding the interest rate outlook.
The market’s relatively calm resilience could improve chances for a summer rally, analysts said.
The Dow Jones industrial average rose 77.29 points, to 10,812.86, on moderate New York Stock Exchange volume of 843 million shares. Winning stocks topped losers by 4-3.
International Business Machines paced the Dow gainers after bullish comments about the company by a Goldman Sachs analyst.
Financial service stocks rallied from a two-day slump.
The Nasdaq composite index advanced 82.89, or 2.1 percent, to 3839.26 on Nasdaq volume of 1.41 billion shares. Nasdaq gainers beat losers by about 4-3.
Late Tuesday, Federal Reserve Board member Laurence Meyer told an audience in Boston that Friday’s report of an unexpected drop in private sector employment was “incredible.” “That means it isn’t credible,” he said.
On Wednesday, Robert Parry, president of the Federal Reserve Bank of San Francisco, told Reuters that new economic reports before the next Fed interest rate policy committee meeting, June 27-28, will not be enough to convince the Fed that economic growth had moderated.
Normalcy: Recently, stocks have recovered somewhat from the spring’s harrowing drops. But trading volume is tepid and, for many investors, the thrill is gone.
So why are veteran stock pickers appearing so content?
Because quality has resurfaced in equity investing, says Wayne Stevens, managing director of Dearborn Partners, a Chicago-based investment boutique.
Through March 31, the Standard & Poor’s 500 stocks with S&P’s highest “quality” grades, based on company fundamentals, posted negative returns on a year-to-date basis, while the lowest-rated stocks soared.
“Our performance lagged the market in the first few months of the year,” said Stevens, who focuses his stock-picking on top-quality growth stocks.
In recent weeks, the picture has flipped. Stocks with “A-plus” S&P grades are up 20 percent in the three months ending May 31, after dropping more than 3 percent in the first quarter, said Richard Bernstein, chief quantitative analyst at Merrill Lynch.
Stocks rated “C” and “D,” the lowest of the S&P grades, were up 32 percent for the three months ended March 31 but are off 10 percent for the three months ended May 31.
But there’s a twist: “Over the long term, C’s & D’s are the best-performing group,” Bernstein said. Top-graded companies usually don’t start out that way. “You want companies whose value is improving,” he said.
Nonetheless, quality counts, Stevens said: “We want to pick the stocks that have the best chance of controlling their destinies going forward.”
Local news: Amcol International, a specialty mineral-products company based in Arlington Heights, is an intriguing arbitrage play.
The company declared Tuesday that it will pay shareholders $14 a share on June 30 from the sale of its Chemdal unit that makes superabsorbent polymers for diapers.
The stock closed at $16.87 Wednesday on the NYSE, up 12 cents.
“Investors will get $14 a share within a month, and their only exposure is a $2 stock, and if management can lift that to $3 or $4, then investors will have made real good money,” said Timothy Vick, a Hammond-based senior analyst with Arbor Capital Management.
The stock market is having difficulty evaluating Amcol’s remaining minerals, environmental and transportation businesses, said Larry Washow, company president and chief executive, particularly because Chemdal had been the company’s biggest growth story.
But he predicts growth in two arenas, the wastewater cleanup business and in a new specialty minerals business that will create a material to enhance plastics.
“I think there is a lot of value that people will see over time,” he said.
– Banc of America initiated coverage of Chicago-based Focal Communications with a “strong buy” rating. Shares rose $3.12, to $38.12.
