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BusinessWeek.com
May 9, 2006
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Dow Hits Six-Year High Ahead of Fed

Markets awaited the Federal Reserve's statement on interest rates coming Wednesday. Also in focus: Dell and GM

Stocks finished mixed in light trading Tuesday, weighed down by a profit warning from Dell (DELL ) but bolstered by General Motors (GM ). Caution hung over the market ahead of the Federal Reserve policy statement Wednesday, says Standard & Poor's Equity Research.

The Dow Jones industrial average rose 55.23 points, or 0.48%, to 11,639.77, a six-year closing high. The broader Standard & Poor's 500 index edged higher 0.48 points, or 0.04%, to 1,325.14. The tech-heavy Nasdaq composite slipped 6.74 points, or 0.29%, to 2,338.25.

Some analysts say it doesn't matter if the Fed has to raise interest rates, as long as inflation remains under control. "With 75 points on the S&P left to go before we reach our 1,400 target for the year-end, we are staying invested," says Henry McVey, chief U.S. investment strategist at Morgan Stanley. "Controlled inflation is a key component of our call, and if it turns out that the Fed is behind the curve and inflation is not controlled, that would undo our bullishness."

Investors were contemplating earnings news Tuesday. Dell (DELL ) was lower after the computer maker cut its forecast for first-quarter earnings and revenues. Chipmaker Intel (INTC ) was also down on the news.

On the positive side, General Motors (GM ) led the Dow higher after restating its first-quarter earnings. Deutsche Bank boosted its rating on the stock from sell to hold.

Fast-food chain Chipotle Mexican Grill (CMG ) was higher after the company reported higher-than-expected earnings and a 19.6% jump in same-store sales.

Amusement-park operator Six Flags (PKS ) was higher despite reporting earnings that fell short of analyst estimates.

Meanwhile, Fluor (FLR) was higher after the construction services company reported unexpectedly strong earnings and raised its outlook for fiscal 2006.

After the close, Cisco (CSCO ) and Disney (DIS ) were among companies set to post quarterly results. Federated (FED ) and News Corp. (NWS ) will report earnings Wednesday.

M&A action continued. Swiss bank UBS (UBS ) reached a deal to buy Brazilian financial services company Banco Pactual for up to $2.6 billion.

Elsewhere, telecom giant Verizon (VZ ) reportedly made a $38 billion bid for the stake it doesn't own in Verizon Wireless.

On the economic docket, wholesale sales rose 0.7% in March, while inventories rose 0.2%. The report, while solid, won't affect the markets, says Action Economics. Investors were also awaiting the Fed's next interest-rate decision Wednesday, as well as Thursday's reports on March business inventories, April retail sales and weekly jobless claims numbers.

The Fed will likely raise the federal funds rate by 25 basis points to 5%, and keep its options open for the June 28-29 meeting, analysts say. However, Fed policymakers will need to remain wary of inflation, says Action Economics.

In the energy markets Tuesday, June West Texas Intermediate crude oil futures closed up 92 cents at $70.69 a barrel amid Iran worries.

European markets finished higher. In London, the Financial Times-Stock Exchange 100 index rose 48.5 points, or 0.63%, to 6,105.6. Germany's DAX index gained 12.74 points, or 0.21%, to 6,140.72. In Paris, the CAC 40 index added 29.78 points, or 0.56%, to 5,312.18.

Asian markets finished lower. Japan's Nikkei 225 index fell 100.76 points, or 0.58%, to 17,190.91. In Hong Kong, the Hang Seng index slid 167.8 points, or 0.97%, to 17,133.99. Korea's Kospi index slipped 1.79 points, or 0.12%, to 1,450.44.

Treasury Market

Treasury yields retreated from session highs after a modestly well-bid three-year note auction, says S&P MarketScope. Prices for 10-year Treasury notes fell to 95-06/32 with a yield of 5.13%, while 30-year bonds dropped to 89-12/32 for a yield of 5.2%.