U.S. Stock Prices Mostly Higher Amid Indecisive Action
NEW YORK (MarketWatch) -- U.S. stocks edged up Wednesday as an indecisive market weighed a hike in pending home sales and the price of oil against the fallout of the latest hit to the credit markets, this time trouble in a third Bear Stearns Cos. hedge fund.
"Crash helmets and seat belts may be in order on Wednesday, as the return of risk aversion should result in choppy and volatile trade," said analysts at Action Economics.
The Dow Jones Industrial Average was up 53.8 points at 13,223.0, with 20 of its 30 stocks advancing, led by pharmaceutical giant Merck & Co. Inc. , which was up 1.9%.
Financial services giant American International Group Inc. led the Dow's losses. Its stock was down 2.3%. Also dipping were the stocks of Alcoa Inc. , off 2.4%, and Honeywell International Inc., , which slid 0.2%.
The S&P 500 advanced 2.25 points to 1,457.52, while the Nasdaq 100 remained lower, 1.54 points down, at 2,545.08.
Volume at the New York Stock Exchange hit 985.68 million shares.
More than 12 billion shares traded at the Nasdaq.
Stocks turned lower on "the possibility of a credit crunch" after the news from Bear Sterns, said Peter Cardillo, chief market economist at Avalon Partners. The concerns could keep the market "trapped in a very volatile situation" in the near-term, he said.
The benchmark contract for crude-oil futures climbed into uncharted territory after a government report showed crude supplies dropped more than expected. September crude climbed as high as $78.70 a barrel on the New York Mercantile Exchange before declining 46 cents to $77.75 a barrel.
After plunging more than 40%, Beazer Homes USA Inc. was off 18% with no confirmation of rumors that the homebuilder might be headed towards bankruptcy.
The market gained steam after the National Association of Realtors reported contract signings on existing homes climbed 5% in June, the largest advance in three years.
Less bullish was an Institute for Supply Management report that a key gauge of the strength of the U.S. factory sector moderated in July, for its first decline after three consecutive monthly gains.
Tuesday's turmoil
On Tuesday U.S. stocks rallied in the morning, but took heavy afternoon losses, with the Dow Jones industrials tumbling 146 points, the Nasdaq Composite losing 37 points and the S&P 500 falling 18 points.
Late in Tuesday's session the market was unnerved by news that American Home Mortgage , which does not specialize in subprime lending, is unable to pay its creditors. The stock lost more than 90% of it worth in Tuesday's session.
Market sentiment did not improve overnight.
"When the market focuses on credit and energy, it goes down," said Art Hogan, chief market strategist at Jefferies & Co. "That was the case late yesterday and that seems to be the case today."
"We've got a real dichotomy here," he said. "When the market focuses on fundamentals, like economic data and strong earnings, as it did Monday and early yesterday, it goes higher. But when it focuses on energy and credit, it goes down. That's why we have so much volatility here."
Bad News Bears
The latest worry for the credit market is news from Bear Stearns that its asset-backed securities fund, which does not carry many subprime loans, suspended investor redemptions and will report a loss for July.
The Bear Stearns Asset-Backed Securities Fund isn't leveraged, which means there's little pressure for the fund to sell positions. The fund also has less than 0.5% of its assets in subprime securities. The asset-backed fund isn't related to two other funds from Bear Stearns that have nearly collapsed.
Bear Stearns stock was off 1.3%.
In more evidence that the credit market's woes are international, Australia's Macquarie Bank said that one of its funds is nursing a monthly loss of 25%. That fund also didn't have direc exposure to the U.S. subprime market.
In some hopeful news, Deutsche Bank Ag. Chief Financial Officer Anthony Di Lorio said virtually all the bank's exposure to collateralized debt obligations -- packages of debt that include subprime mortgages -- is as a market maker in its trading books, rather than a direct holder of debt.
Those exposures are revalued on a daily basis and are reflected in the bank's trading performance, he said.
The ADP employment report showed 48,000 new private-sector jobs were created in July, suggesting that overall non-farm payroll growth last month may be below the 133,000 positions projected in a MarketWatch poll of economists.
Stocks in action
Time Warner Inc. reported a 5.2% profit rise in the latest quarter. Both earnings and revenue beat Wall Street expectations. Its stock fell 3.4%.
Kraft Foods Inc. had a 3.7% gain in earnings. The result exceeded analysts' expectations.
Broker moves
Citigroup upgraded Apple Inc. to buy from hold, citing Tuesday's 7% pullback in the shares. The broker left its price target unchanged at $160. It said that iPhone and iPod production cuts rumored in Asia should not be a surprise to investors.
Morgan Stanley downgraded Lyondell Chemical Co. to equal-weight from overweight, saying it believes a higher takeout bid for the company is less likely.
Other markets
The dollar hit an almost four-month low against the yen before bouncing back Wednesday as fears of spreading subprime mortgage market woes led investors to unwind carry trades.
In New York trading, the dollar was quoted at 118.65 yen, vs. 118.55 yen late Tuesday. The euro stood at $1.3707, compared with $1.3683.
Treasurys came under pressure, with the benchmark 10-year Treasury note down 3/32 at 98 1/32 with a yield of 4.753%.
Gold futures fell, with gold for December delivery shedding $1.30 at $678 an ounce on the New York Mercantile Exchange.
By Leslie Wines