Investors dipped their toes into the stock market Tuesday, but most found the water still too cold.
Old-economy stocks rose sharply on upbeat economic data, with the Dow Jones industrial average gaining more than 232 points by afternoon, but fell sharply in the last hour of trading to finish with modest gains. Tech stocks slumped after investors questioned Hewlett-Packard’s proposed acquisition of Compaq Computer.
Treasury bonds slumped and the dollar jumped to a 3 1/2-week high against the euro after the National Association of Purchasing Management reported that business conditions improved last month more than economists had expected.
The NAPM index showed the manufacturing sector is still in a slump, but data on new orders and production improved sharply, “suggesting that a turnaround in the factory sector may be in progress,” said Jade Zelnik of Cambridge Capital.
If the numbers hold up and consumer spending remains strong, Federal Reserve policymakers may not stage another cut in short-term interest rates at their next meeting in October, Zelnik said.
The Dow finished with a gain of 47.74 points, to 9997.56. An early rally on the NAPM news sent the Dow as high as 10,182 during trading.
“Today certainly wasn’t a day you could call a reversal,” said Chicago-based independent technical analyst Gregory Nie. “It proved to be an intraday reaction to the NAPM number. We still have a market struggling to find a low.”
By the close, advancers held an 8-7 margin over losers among NYSE-listed stocks. Financials, consumer non-durables, retailing and oil were among the sectors closing higher. But technology stocks closed lower, dragging the Standard & Poor’s 500 index down 0.64, to 1132.94.
New York Stock Exchange volume reached 1.19 billion shares.
The Nasdaq composite index dropped 34.65, or 1.9 percent, to 1770.78, on Nasdaq trading volume of 1.53 billion shares. Losers outnumbered winners by 3-2.
Hewlett-Packard fell $4.34, or nearly 19 percent, to $18.87, and reached a new 52-week low, $18.75, during the session, more than $4 below the previous low. The HP drop pushed shares of Compaq Computer down $1.27, or 10 percent, to $11.08, after reaching a fresh 52-week low of $10.75.
Separately, analysts at UBS Warburg and Lehman Brothers predicted sharp reductions in capital spending by telecommunications companies, including the former Bell telephone companies.
Locally, telecommunications equipment supplier Tellabs, based in Lisle, fell 55 cents, to $12.77, after hitting a new 52-week low of $12.65 during the session.
The Russell 2000 index of small-company stocks lost 1.60, to 466.96.
Looking forward, Nie said historical data show that when the Dow falls to about 88 percent of its 200-day moving average, investors often decide “enough is enough” in terms of a market slump.
On that basis, if the Dow reaches about 9280, a rally could commence, he said.
“For investors who are willing to be patient, at some time in the next six to 12 months, this is going to be perceived to be a buying opportunity for investors, not necessarily for traders,” Nie said.
The next key data are scheduled for release Friday morning–the Labor Department’s report on job growth and unemployment in August. Economists believe the unemployment rate rose to 4.7 percent from 4.5 percent in July.
Followup: My column on Sunday discussed the pros and cons of investing in companies known to repurchase their shares with regularity.
On Tuesday, Moody’s Investors Service reported that U.S. corporate share buyback announcements fell last month to $7.2 billion from $16 billion in July.
So far this year, share buyback announcements are running about 40 percent below last year, Moody’s said.
That’s bad news for investors counting on buybacks to boost share prices. The silver lining is that a decline in repurchases often signals company managers are more optimistic about the outlook and are conserving capital for growth, Moody’s said.
Treasury auction: Interest rates rose at Tuesday’s weekly auction of 3- and 6-month Treasury bills. The discount rate for 3-month bills was 3.36 percent, up from 3.35 percent last week. The rate for 6-month bills was 3.31 percent, up from 3.29 percent last week. The coupon-equivalent rates were 3.34 percent for 3-month bills and 3.41 percent for 6-month bills.
