News Article
BusinessWeek.com
February 15, 2006
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Stocks Rise After Positive Bernanke Remarks

The new Fed chairman sounded an upbeat note before Congress amid mixed economic reports. Crude futures fell below $58

Stocks finished higher Wednesday, bolstered by a lack of surprises in Fed Chairman Ben Bernanke's first testimony to Congress. A mixed bag of economic reports was also in the picture, while crude oil futures continued their descent. Select tech, retail and health care stocks led gains, accompanied by slightly lower volume, says Standard & Poor's MarketScope.

The Dow Jones industrial average rose 13.37 points, or 0.12%, to 11,041.76. The broader Standard & Poor's 500 index edged higher 1.8 points, or 0.14%, to 1,277.33. The tech-heavy Nasdaq composite index added 10.2 points, or 0.45%, to 2,272.37.

The new Fed chief told the House Financial Services Committee the economic expansion remains on track but cautioned about the risk of overheating, according to prepared remarks. He reiterated the Jan. 31 FOMC statement leaving the door open to "some" further rate increases. He also said the Fed's decisions will be flexible but "increasingly dependent" on data. These comments were in line with expectations, says Action Economics.

Bernanke's testimony likely sets the stage for additional rate hikes. "Given our economic outlook, we see the funds rate rising to 5% by the May 10 FOMC meeting and we see an increasing risk of a 5.25% fed fund rate by the middle of the year," says John Ryding, chief U.S. economist for Bear Stearns.

The comments were notably even-handed, some analysts say. "We have a hard time trying to put a hawkish or dovish spin on Chairman Bernanke's prepared remarks," says Joseph LaVorgna, chief U.S. fixed income economist at Deutsche Bank.

In economic data Wednesday, industrial production fell 0.2% in January. But December and November data were also revised higher, so the decline doesn't suggest weakness, says Action Economics. Earlier, the U.S. Empire State manufacturing index edged higher to a better-than-expected 20.3 in February. The National Association of Home Builders remained at 57 in February for the third straight month, ahead of Thursday's housing starts report.

Earnings news came after the close. Computer maker Hewlett-Packard (HPQ) reported first-quarter non-GAAP diluted EPS of $0.48, up from $0.37 a year earlier, and raised second-quarter guidance. Chip-equipment manufacturer Applied Materials (AMAT ) posted fist-quarter EPS of 9 cents, down from 17 cents. Companies reporting Thursday include Dell (DELL ), JC Penney (JCP ) and Target (TGT ).

M&A activity continued Wednesday, as brokerage giant Merrill Lynch (MER ) and money manager BlackRock (BLK ) reached a deal to merge Merrill's investment management business and BlackRock. Merrill will have a 49.8% stake and 45% voting interest in the newly created entity. As a result of the merger, PNC Financial (PNC ), which owns 70% of BlackRock, will hold a 34% share in the combined company.

Separately, Merrill boosted Bank of New York (BK ) and Bear Stearns (BSC ) from neutral to buy. Credit Suisse (CSR ) shares fell more than 8% amid worries about rising costs and investment bank revenue.

Among other companies in the news, Johnson & Johnson (JNJ ) was little changed after a report that the company is slashing its sales operations for anemia drug Procrit. DuPont (DD ) was also little changed after the Senate shelved an asbestos relief bill.

Anheuser-Busch (BUD ) and Wells Fargo (WFC ) were both higher after billionaire investor Warren Buffett's company, Berkshire Hathaway (BRK.A ), revealed large stakes in the companies.

In the energy markets Wednesday, March West Texas Intermediate crude oil futures settled down $1.97 at $57.60 per barrel. A weekly inventory report showed crude supplies jumped 4 million barrels, far more than expected.

European markets finished mixed. In London, the Financial Times-Stock Exchange 100 index slipped 0.8 points, or 0.01%, to 5,791.5. Germany's DAX index edged higher 0.97 points, or 0.02%, to 5,764.37. In Paris, the CAC 40 index fell 27.25 points, or 0.55%, to 4,934.09.

Asian markets ended mostly lower. Japan's Nikkei 225 index fell 252.04 points, or 1.56%, to 15,932.83. In Hong Kong, the Hang Seng index edged higher 2.94 points, or 0.02%, to 15,423.26. Korea's Kospi index declined 24.37 points, or 1.83%, to 1,303.84.

Treasury Market

Prices for 10-year Treasury notes were slightly higher at 99-06/32 with a yield of 4.6%, while 30-year bonds climbed to 98-28/32 for a yield of 4.57%. The yield curve was inverted.