Let’s pretend Tuesday didn’t happen.
A variety of issues depressed stocks Tuesday, but the market bounced back Wednesday, leaving the Dow Jones industrial average with a net gain for the two days.
Locally, several stocks that ended Friday at all-time or 52-week highs–including Illinois Tool Works, Alberto-Culver, Brunswick, Fortune Brands and General Growth Properties–set new highs on Wednesday after in some cases slipping on Tuesday.
A stock market vulnerable to scares about aggressive accounting and debt was hit Tuesday with additional disruptions–including a USA Today story speculating that Federal Reserve Chairman Alan Greenspan might retire early, and reports of an apparently fraudulent bid for Treasury securities in early February, totaling about $1 billion.
Wednesday saw few such incidental disruptions, except an overblown editorial in The Wall Street Journal comparing government-sponsored corporations Fannie Mae and Freddie Mac to Enron. Shares of the two mortgage finance agencies lost more than 1 percent in Wednesday’s session.
Late Wednesday, the Treasury Department enlarged its disclosure about fraudulent bidding at Treasury auctions, saying the same bidder believed responsible for improper bids in the week of Feb. 4 attempted to violate bidding rules for a coming 2-year note auction but was blocked.
The government has not identified the bidder, but money-market traders appear to have taken the episode in stride.
Overall, stock market strategists see a market poised to express optimism about an economic rebound this year but constrained by shocks to credibility and confidence caused by Enron and its fallout.
“Investors are being distracted from the general economic trend by things like Enron,” Tobias Levkovich, strategist for Salomon Smith Barney, said in a conference call with reporters Tuesday.
Levkovich said investors find themselves between two upbeat trends–the push of lower interest rates, engineered by the Fed last year, and the pull of stronger corporate profits, which have yet to materialize at many companies.
In the interim, the Enron story and related accounting scares have taken center stage, he said.
Noting that operating profits by major companies dropped 20 percent last year, the worst slide since the Great Depression, Levkovich added, “If people were trying to manipulate [financial reports] across the board, you’d think they could do a better job.”
Wednesday’s action: The Dow Jones industrial average climbed 196.03 points, or 2.0 percent, to 9941.17, the biggest point gain since Dec. 5.
All but two of the 30 Dow industrials–Boeing and International Business Machines–posted gains, an exact reversal of Tuesday’s action, when all but two Dow stocks lost ground.
The broader Standard & Poor’s 500 index gained 14.64, or 1.3 percent, to 1097.98. The Nasdaq composite index rose 24.96, or 1.4 percent, to 1775.57, as telecommunications stocks remained under pressure from worries about debt levels in the sector.
In the latest accounting-related incident, shares of Computer Associates sank $4.40, to $20.91, after Newsday reported that the Justice Department was investigating the company’s accounting reports. The company said it has not been notified of any such investigation.
Meanwhile, General Electric joined IBM in pledging to make more forthcoming financial disclosures. Both companies have been targets of criticism about their financial reports for many years.
The Russell 2000 index of small-company stocks rose 7.27, or 1.6 percent, to 467.25.
Treasury securities slipped in thin trading, reflecting the stock market rally and news of tame consumer price inflation in January.
Bond traders are already speculating about Greenspan’s coming testimony to Congress, scheduled for Wednesday. Greenspan is certain to be asked about Enron, accounting controversies and the use of financial derivatives.
Economists expect that Fed policymakers will sit on their hands for the next several months, leaving the short-term interest rate target unchanged.
