Traders took to the sidelines Monday, as Wall Street prepared to honor its dead from the Sept. 11 terrorist attack on the World Trade Center.
Share volume dried up, producing the smallest daily volume for the Nasdaq market in a month, except for the Friday before the Labor Day holiday.
Stocks, bonds and related options and futures will trade in abbreviated sessions Wednesday. Trading is expected to be light at least through Wednesday.
In Monday’s action, stocks pulled out of a morning slump to close slightly higher. The Dow Jones industrial average closed up 92.18 points, or 1.1 percent, at 8519.38. The Dow traded as low as 8316 in the morning.
The intense media focus on the anniversary apparently has not worsened already fragile investor sentiment. In a customer survey by online broker E-Trade Group, 90 percent of active investors said the anniversary would have no effect on their buy-sell decisions.
On the other hand, increased talk by the Bush administration of a U.S. invasion of Iraq continued to rattle financial markets. The price of gold hit a seven-week high, $325.50 an ounce, in New York futures trading. Gold for December delivery closed up $1.30, to $322.80.
Oil prices rose ahead of next week’s meeting of OPEC oil ministers. Oil for October delivery added 12 cents a barrel, to $29.73.
The day’s economic reports brightened the investment picture. Wholesale inventories rose 0.6 percent in July, indicating that manufacturers were modestly optimistic about the prospect for sales. Separately, major retailers said sales so far in September were in line with their estimates.
Philip Morris, 3M and International Business Machines led the gainers among the 30 Dow industrials. J.P. Morgan Chase, Exxon Mobil and Honeywell International led the losers. Merrill Lynch withdrew its “buy” rating on J.P. Morgan Chase.
The broader Standard & Poor’s 500 index added 9.04, or 1.0 percent, to 902.96; the Nasdaq composite index rose 9.30, to 1304.60; the Russell 2000 index of small-company stocks edged up 0.90, to 392.47.
After the close of Monday’s regular trading, Ford Motor said it expects to post a profit for the third quarter, ending Sept. 30. Analysts had expected a loss for the period. Ford shares climbed in after-hours trading.
New York Stock Exchange trading volume reached 1.14 billion shares. The number of winning stocks topped losers by a narrow margin among NYSE-listed stocks. But losers topped winners by a slim edge among Nasdaq stocks. Nasdaq trading volume totaled 1.25 billion shares.
Treasury securities edged lower, mirroring the late rally in stocks.
Mutual woes: Despite evidence of a moderate economic recovery, sentiment among individual investors remains grim and self-reinforcing.
Analysis by market researchers at the Leuthold Group in Minneapolis indicates that the record high net redemptions from mutual funds in July–$52.6 billion–was worse than the mutual fund industry revealed.
The Investment Company Institute, the trade association for mutual funds, reported that the July net redemptions represented 1.7 percent of assets in equity mutual funds, compared with 3.2 percent net redemptions in October 1987, the month of a stock market crash.
But the growth of mutual funds as a factor in the stock market–and the principal vehicle for individual investors–has magnified the impact of fund cash flow on the overall stock market.
Leuthold estimates that July’s net redemptions equaled 0.6 percent of total U.S. stock market capitalization, double the level of net redemptions in October 1987.
Figures from August are expected to show another round of net redemptions, though at a slower pace.
Managers of stock mutual funds may be forced to sell holdings if redemptions heat up again, deepening investor anxiety, he said.
“You can’t look to Main Street for support for another year or two,” said Eric Bjorgen, senior analyst at Leuthold Group.
One newly minted mutual fund manager says the times require equity funds to hold cash and fixed-income securities.
The Auxier Focus Fund, which went public in 1999, is classified as a large-capitalization value fund in data provided by fund tracker Morningstar.
But manager Jeffrey Auxier said he’s keeping only about half his fund’s assets in stock, with the rest in cash and carefully selected fixed-income investments.
The environment for holding stocks–especially stock index funds–remains risky. Pension liabilities, weak balance sheets and the cost of executive stock options have yet to be fully reflected in stock prices, he said.
“We identify great businesses, strong managements, clean accounting, predictable earnings and then we wait” until share prices sink, Auxier said. In the meantime, “You need a protected moat.”
He’s holding about 25 percent of his fund in cash and has bought debt securities of distressed companies, collecting high yields and waiting for the debt to be converted into low-cost equity if the company reorganizes in bankruptcy.
Treasury auction: Interest rates rose at the Treasury’s weekly auction of 3- and 6-month bills. The discount rate on 3-month bills was 1.64 percent, up from 1.61 percent last week, The rate on 6-month bills was 1.63 percent, up from 1.58 percent last week. The coupon-equivalent investment rates at Monday’s auction were 1.68 percent for 3-month bills and 1.67 percent for 6-month bills.
