Stocks inched higher Tuesday in another day of weak trading volume. Treasury bonds edged up as well.
Oil prices dropped for the third straight day in New York futures trading, reflecting prospects for greater output from Iraq.
The Dow Jones industrial average rose 25.58 points, to 10,098.63. An investment rating upgrade for Caterpillar helped lift the Dow. Caterpillar rose $1.10, to $73.15.
But a negative outlook for computer networking systems developer Cisco Systems by brokerage firm UBS put the technology sector in the red. Cisco shares lost 21 cents, to $18.97.
Semiconductor stocks resumed their slide. Industry leader Intel shed 22 cents, to $21.67.
The Standard & Poor’s 500 index added 0.51, to 1096.19. The Nasdaq composite index slipped 1.81, to 1836.89. The Russell 2000 index of small-company stocks rose 1.54, to 545.01.
New York Stock Exchange trading volume reached 1.09 billion shares. Winners outnumbered losers by a 9-7 ratio among NYSE-listed issues.
Nasdaq trading volume totaled 1.26 billion shares, as winners topped losers by about an 8-7 ratio.
Greenspan doesn’t hedge: According to growing complaints, hedge funds–thinly regulated investment pools–are roiling markets for everything from oil to small-cap stocks.
The Securities and Exchange Commission is considering a rule that for the first time would force hedge funds to register with the SEC.
In a letter to the Senate Banking Committee, Federal Reserve Board Chairman Alan Greenspan said hedge funds do not require more government oversight.
“There is no evidence that investors in hedge funds today are any less sophisticated than they were in 1999,” when a group of high-level federal financial regulators said there was no need to regulate hedge funds.
“Indeed, institutional investors have accounted for a growing share of hedge fund investments, and they can and should protect their own interests rather than rely on the limited regulatory protections that would be provided as a result of a registration requirement,” Greenspan said.
“Concerns about market manipulation, whether by hedge funds or others, can best be addressed by enhanced market surveillance.”
On other matters, the Fed chief said he cannot determine if a housing price bubble is forming.
“House price increases have outstripped gains in income and rents in recent years,” raising “the possibility that real estate prices, at least in some markets, could be out of alignment with the fundamentals.” Nonetheless, “that conclusion cannot be reached with any confidence,” Greenspan wrote.
He declared that Japan seems to “finally be on its way to a self-sustaining recovery,” but could be hurt by sustained high prices for oil. He also expressed concern about “the possibility of a hard landing in China,” whose economy has been booming.
California dreaming: Credit rating service Standard & Poor’s boosted its rating on the State of California by three notches, to A from BBB. S&P cited “the easing of the immediate liquidity pressure on the state” and “the state’s recent economic improvement.”
In effect, California successfully refinanced its debts but remains burdened with debt well in excess of its ability to pay. S&P expects it to show a large budget deficit at the end of its current fiscal year.
“We are not out of the woods yet,” said California Treasurer Phil Angelides.
Richard Ciccarone, a municipal bond specialist at McDonnell Investment Management in Oak Brook, said Gov. Arnold Schwarzenegger has moderated tempers in California’s fiscal politics but needs a 60 percent vote of the legislature to achieve a budget.
Ciccarone noted that, based on accounting principles recently adopted for state and local governments, Illinois was in worse shape, despite its AA rating. Illinois was the second-worst state in the country, comparing negative net assets to government activity spending, as of the end of fiscal 2003. Connecticut was the worst; California the third worst.
