Treasury Auction Lifts Stocks

Article Video Comments (21) more in Markets Main »Email Printer By GEOFFREY ROGOW and PETER A. MCKAY Stocks pushed higher in thin trading as a better-than-feared auction of seven-year Treasury notes helped restore confidence in an economic recovery and as energy company shares jumped amid an increase in crude-oil prices. Demand for the Treasury's $26 billion seven-year sale was in line with the last sale. An auction of notes on Wednesday had fanned concern about increased supplies of government debt and traders had been fearing the worst going into the Thursday auction. Market Data Center > Most Actives | Gainers | Losers New Highs and Lows | Money Flows Intraday Futures | Currencies "The sell-off yesterday showed there was some real fear coming into this. Clear cut case of sell on the rumor, buy on the news," said Kent Engelke, chief economic strategist for Capitol Securities Management. Major indexes had seesawed all morning after better-than-expected reports on jobless claims and durable-goods orders were followed by discouraging data on new home sales. But after the Treasury auction, stocks moved sharply higher. The Dow Jones Industrial Average rose 103.78 points, or 1.3%, to 8403.80. The S&P 500-stock index gained 13.77, or 1.5%, to 906.83, boosted by its energy and financial sectors. Financials sold off aggressively Wednesday. The tech-heavy Nasdaq Composite Index climbed 20.71, or 1.2%, to 1751.79. Setting off the jump in energy stocks, crude-oil prices rose after data showed a much bigger drawdown in U.S. energy stockpiles than analysts expected. The front-month crude contract rose $1.63 to settle at $65.08 a barrel in New York. Steve Bellino, senior vice president at MF Global, a New York futures brokerage, said the oil market is looking more like it did during the bubble that included record prices near $150 last summer. Though he's not expecting those levels to be breached again, he said triple-digit prices are a possibility now that participants are again willing to trade crude purely as an investment. "In a thin market, it doesn't really take a lot of money to come in that way to move prices," he said. "But if you ask anyone who trades this market all the time, there's no way the fundamentals justify the move we've seen over the last month," with crude futures up more than 30%. Traders said the stock market's moves were exaggerated Thursday by a lack of participation. At times when activity dries up, a few buyers can cause outsized gains in major indexes. Mike Mainwald, head trader at Lek Securities, a New York brokerage, said there were few long-term investors involved in Thursday's action, just short-term traders looking to get in and out of certain names quickly. In particular, Mr. Mainwald said options activity in General Motors suggested that many investors are still looking for a near-term plunge in its stock -- a scenario he believes is less likely in light of a deal approved by bondholders. "I really thought the government was going to step in and wipe out some of the bondholders," claiming rights to be repaid ahead of private lenders, said Mr. Mainwald. "I'm glad we avoided that situation. It's a really positive development." Markets reversed yesterday's downward trend, as the Treasury's auction lifted markets in a see-saw trading day. Peter McKay reports. GM, which appears to be on the verge of a bankruptcy filing, slid three cents to $1.12. Sentiment on the economy continues to shape trading. While Wall Street's current consensus is that the worst of the credit and economic crisis-related selling may be over, the economy still remains on a weak footing. "We are seeing some encouraging changes in trends, but the data is showing us this recovery will be very slow and hard earned, and that's going to keep washing back on investor consciousness," said RidgeWorth Large Cap Core Equity Fund Portfolio Manager Jeff Markunas. Sales of new homes edged up by 0.3% in April, but the median price of a new home fell 14.9% from a year ago and the backlog of unsold homes remained high, at about 10 months of supply. In addition, about 12% of first-lien home mortgages in the U.S. were overdue or in foreclosure at the end of March, the Mortgage Bankers Association said Thursday. That's up from 8.1% a year earlier. But traders noted employment is the largest determining factor in foreclosure data, and welcomed a report that new claims for unemployment benefits eased slightly last week. Also helping stocks, durable-goods demand picked up in April. —Deborah Lynn Blumberg contributed to this report. Write to Geoffrey Rogow at geoffrey.rogow@dowjones.com and Peter A. McKay at peter.mckay@wsj.com