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updated: 6/26/2013 12:08 PM

U.S. stocks rise for a second day; yields slip

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Associated Press

NEW YORK -- U.S. stock indexes moved higher for a second day Wednesday as the bond market recovered from a slump. Traders were also encouraged by an upturn in Europe.

The Dow Jones industrial average was up 80 points, or 0.6 percent, to 14,842 as of 11 a.m. Eastern Daylight Time. Boeing led the Dow higher with a jump of $2.07, or 2.1 percent, to $100.71.

The Standard & Poor's 500 was up 14, or 0.9 percent, to 1,602. All 10 industry sectors in the S&P 500 were up, led by health care stocks.

A stampede out of U.S. government bonds reversed course Wednesday after the government reported that the U.S. economy grew at an annual rate of 1.8 percent in the first three months of the year, significantly lower than the previous estimate of 2.4 percent.

Investors may have decided that the slower-growing economy will influence the Federal Reserve to delay any plans to pull back on stimulus measures. Those measures, which include buying bonds to push investors into stocks and keep interest rates low, are meant to prop up the economy.

U.S government bonds rallied, sending yields lower. The yield on the 10-year Treasury note, a benchmark for many kinds of loans, fell to 2.53 percent from 2.61 percent late Tuesday. The yield has risen sharply over the last week as traders sold bonds in anticipation of the Fed winding down its bond-buying program. It was 2.19 percent June 18, the day before the Fed outlined its plans.

The recent spike had worried investors that a sudden increase in mortgage rates could undermine the recovery in the U.S. housing market. Some homebuilder stocks rose following the easing in interest rates. Lennar rose 66 percent, or 1.8 percent, to $35.88 and Toll Brothers rose 34 cents, or 1.1 percent, to $32.30.

Fed Chairman Ben Bernanke set off a stock market rout a week ago when he said the Fed could rein in the bond-buying program starting as early as this year. The Dow lost 560 points over Wednesday and Thursday last week. The Dow has gained back only about 100 points since that plunge.

It wasn't that investors were surprised that the Fed will pull back on its stimulus programs: Most everyone expects that to happen eventually. It was more that they were worried that the Fed might pull out too soon, before the stock market could stand on its own without the Fed propping it up. The Fed buys $85 billion worth of bonds very month.

Chip Cobb, senior vice president of BMT Asset Management in Bryn Mawr, Penn., predicted a volatile summer for the market, noting that companies will start to report earnings en masse in early July. Friday is the last trading day for the second quarter.

"We're not seeing any significant bottom-line growth," Cobb said. "It's all been cost-cutting measures."

Other Fed officials have scrambled to reassure investors that the central bank won't pull out of stimulus measures until it's sure the economy can handle it. Dallas Fed president Richard Fisher and Richmond Fed president Jeff Lacker are both scheduled to testify at a hearing with the U.S. House's banking committee Wednesday morning. While the Fed isn't the topic -- how to prevent bank bailouts is -- either could take the opportunity to speak on where they think Fed policy should go.

Markets were higher in Europe. Benchmark indexes rose 2 percent in France and 1.8 percent in Spain. Borrowing costs fell sharply for Spain and Italy as investors bought European government bonds.

The price of gold fell sharply as traders bet that the Fed would not make an early exit from stimulus. Gold for August delivery fell $40, or 3.2 percent, to $1,234 an ounce. Crude oil fell 98 cents, or 1 percent, to $94.34 a barrel. The dollar rose against the Japanese yen and the euro.

At 1.8 percent, U.S. economic growth for 2013 would be less than 2010 or 2012, and in line with 2011. And while investors are glad for growth -- after all, the U.S. economy shrank in 2008 and 2009 -- most say they'd like to see an annual rate of 3 or 4 percent before they can feel comfortable about the pace of the economic recovery.

In other stock trading, the Nasdaq composite index was up 20 points, or 0.6 percent, to 3,368.

Among companies making big moves:

--Fertilizer maker Mosaic fell after Citigroup analysts downgraded the stock to "Neutral" from "Buy," citing a hold-up in the company's stock buybacks and questions over demand for fertilizer. The stock fell $1.91, or 3.4 percent, to $54.

--Gun manufacturer Smith & Wesson fell, even after reporting that its profits doubled, as quarterly revenue missed analysts' forecasts. The stock fell 23 cents, or 2.3 percent, to $9.76.

--General Mills, whose products include Cheerios and Nature Valley granola bars, fell after reporting earnings predictions that came in slightly below analysts' estimates. The stock fell 49 cents, or 1 percent, to $47.84.

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