Oil Price Fails to Halt Markets

Oil may become a big problem for Wall Street at some price, but that price wasn’t reached Thursday.

Stocks rallied sharply even as oil hit another record high, with near-term futures contracts in New York rising 90 cents to $65.80 a barrel.

Undaunted, investors drove the Dow Jones industrial average up 91.48 points, or 0.9%, to 10,685.89, recouping nearly all of the blue-chip index’s loss from a bout of profit taking over the last two weeks.

The broader market also advanced. The New York Stock Exchange composite index closed at an all-time high, gaining 62.44 points, or 0.8%, to 7,590.83.

Stocks worldwide have largely ignored the latest surge in oil prices. Crude is up 16.5% since the end of June, yet the Dow has risen 4% in the same period. Many foreign markets have posted even better gains. Hong Kong shares are up 8.8%, the German market is up 8% and the Australian market is up 4.3%.

Instead of worrying about oil’s effect on the economy, many investors see higher energy prices as a sign that global growth is strong, which has positive implications for corporate earnings, analysts say.

U.S. companies “are still shockingly profitable” despite a more than 51% rise in oil prices this year, said Steven Wieting, economist at Citigroup Global Markets in New York.

With the majority of companies having reported their second-quarter results, operating earnings for the Standard & Poor’s 500 companies are on pace for a 14% increase from a year earlier, according to earnings tracker Zacks Investment Research in Chicago.

In June, analysts had expected results to rise at a high-single-digit rate in the quarter.

Besides the upbeat earnings news, the stock market has been helped by the bond market, some analysts say. Although the interest rate on the bellwether 10-year Treasury note has risen since June, it’s still within the range of 4% to 4.5% that has prevailed since mid-2003.

The T-note ended at 4.31% on Thursday, down from 4.39% on Wednesday, after the government’s sale of $13 billion in new 10-year notes saw better-than-expected demand.

“Is a 4% yield attractive? If it is, don’t risk money in stocks,” said Kevin Caron, investment strategist at Ryan Beck & Co. in Livingston, N.J. But because many investors don’t view bonds as an appealing alternative, the stock market is winning that beauty contest, he said.

Jay Wong, a portfolio manager at investment firm Payden & Rygel in Los Angeles, said that although the stock market had coped well with oil’s surge this year, at some price investors might begin to be spooked by the risk of an economic slowdown because of energy costs.

“Everything has its breaking point,” Wong said.

Among Thursday’s market highlights:

* The S&P; 500 rose 8.68 points, or 0.7%, to 1,237.81 and the Nasdaq composite rallied 16.74 points, or 0.8%, to 2,174.55. The S&P; index was back within 0.6% of its four-year closing high reached Aug. 3.

Winners topped losers by about 2 to 1 on the New York Stock Exchange and on Nasdaq.

* Treasury bond yields were lower across the board after the new 10-year notes were sold at a yield of 4.35%. Indirect bidders, a category that includes foreign investors, bought 46% of the notes, well above the 31% they bought at the last such note sale in May. That eased worries that foreigners might be losing their appetite for U.S. bonds.

* Oil got a push from the International Energy Agency, which lowered its estimate of output this year by producers outside the Organization of the Petroleum Exporting Countries. The agency cited production problems in the North Sea and the Gulf of Mexico.

* The Dow was led higher by McDonald’s, which jumped $1.99 to a 4 1/2 -year high of $34.69 on rumors that its real estate holdings may be stoking the interest of private-equity investors or a real estate investment trust. McDonald’s said it didn’t comment on market rumors.

* Aerospace shares rallied. Boeing rose $1.35 to $67.31, United Technologies added $1.65 to $51.63 and Triumph Group was up $1.25 to $41.66.

* Near-term gold futures surged $9 to $445.50 an ounce, the highest since March. Traders said the metal was helped by weakness in the dollar. The euro rose to a two-month high of $1.244 from $1.236 after the European Commission predicted economic growth would improve in the second half of this year.

* Japan’s Nikkei-225 index rose 1.4% to a four-year high of 12,263.32 amid data showing a pickup in the economy.

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Ignoring oil

Most major stock markets have surged since June 30, and are up year to date, despite soaring oil prices.

*--* Price change since: June 30 Dec. 31 Crude oil +16.5% +51.4% Market/index Mexico/IPC +9.5 +14.3 Hong Kong/ Hang Seng +8.8 +8.5 Canada/ S&P-TSX; +8.1 +15.7 Germany/DAX +8.0 +16.4 Japan/ Nikkei-225 +5.9 +6.7 U.S./Nasdaq composite +5.7 nil U.S./S&P; small-stock +4.8 +6.2 Britain/ FTSE-100 +4.8 +11.3 Australia/ ASX-200 +4.3 +10.1 U.S./S&P; 500 +3.9 +2.1

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Foreign markets are measured in local currencies.

Sources: Times research, Bloomberg News

Los Angeles Times