Wall Street recovered from a steep loss for a second day in a row Tuesday with traders apparently unable to decide whether inflation is a threat.
The Dow Jones industrial average struggled back to close at 3702.66, down just 0.33 after being off more than 30 points earlier in the day. The Nasdaq index rose 2.76 to 709.59. Volume on the New York Stock Exchange was 250 million shares.
Market-moving news, namely a report of steady prices at the wholesale level, should have reassured traders that inflation remains at bay. The figures, better than expected, show inflation of 1.6 percent at the wholesale level for the year, or virtually comatose.
Instead, the numbers sent stocks down at first as bond yields rose in apparent expectation of inflation, despite the lack of evidence.
“We’re in a mode where people are more willing to react to bad news than good news,” said David Prickril of Glenmede Trust in Philadelphia. Stocks fell because investors are convinced inflation is bound to accelerate, Prickril said.
With higher rates looming, the $12 billion Teachers Retirement System of Illinois is “taking money off the table” and putting more cash in real estate investments, said chief investment officer Thomas Zimmerman in Springfield.
Bond traders, who control long-term rates, have been convinced of a resurgence of inflation since last fall, though it has yet to appear in any numbers except commodity indexes.
There’s some logic to their thinking, especially with a falling dollar. Inflation usually occurs in the business cycle about this far into a recovery. And with the dollar setting post-World War II lows against the yen, Japanese imports to the U.S. may cost more to make up the difference.
Yields on the government’s benchmark 30-year bonds surged to 7.73 percent, then fell back to close at 7.68 after traders had second thoughts. Stocks traded in sympathy with bonds, dropping as the yield rose, then recovering when the yield dropped.
One of the day’s biggest movers was Schaumburg-based Motorola, up $5.25, or 11.7 percent, to $50 on stronger-than-expected earnings, released Monday after the market closed.
Motorola’s gain came despite a weaker-than-expected monthly report on new orders in the semiconductor industry.
Technology stocks were initially hurt by the semiconductor industry’s report on new chip orders in June. The “book-to-bill” ratio showed chipmakers got $108 in new orders for every $100 of goods shipped last month, well below estimates and the first decline since September. Analysts had predicted $112 of new orders.
“That’s slightly on the negative side, but it’s not too unusual during the summertime, when demand slackens,” said Don Hays, market strategist at Wheat First Butcher Singer.
That view helped Intel reverse an earlier loss and rise 6 cents to $60.12. Applied Materials rose $1 to $48.50, Micron Technology gained $1.75 to $38.87 and LSI Logic added 87 cents to $28.50.
Goodyear dropped $1.75 to $35 after management said earnings may miss estimates by several cents for the second quarter. The market has punished stocks failing to make estimates, even if the real figures look pretty good.
Chairman Stanley C. Gault said second-quarter earnings will reach $1.05 to $1.09 a share, compared with last year’s $1.05 and analysts’ forecast of $1.10.
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Heartland report: General Binding of Northbrook said it signed a letter of intent to purchase Sickinger, an Auburn Hills, Mich.-based maker of office-products machines. Purchase price for the transaction, scheduled to close by Aug. 31, was withheld.
Shares of Northbrook-based Caremark International rose 7.7 percent, or $1.50, to $20.87, following an analyst’s report that the home health-care company’s stock could be worth as much as $74 a share. The estimate, by First Boston analyst Joyce Albers, is more than three times Caremark’s current stock price.
Cherry of Waukegan declared its first stock dividend since 1991, one share of Class A common stock on each issued and outstanding share of voting common, payable July 14 to stockholders of record July 11.