U.S. Stocks Extend Rally Fueled By Inflation Data
NEW YORK (MarketWatch) -- U.S. stocks rallied Wednesday after April data calmed worries about inflation, helping lift financial and consumer discretionary stocks, and Freddie Mac reported smaller-than-expected losses, offsetting credit-market jitters.
The benign inflation report and a slide in crude-oil futures offset for some, worries about consumer spending, which drives 70% of the nation's economy.
But, many analysts expressed doubts.
"Anybody who believes inflation moderated is not living in the real world," said Peter Boockvar, equity strategist at Miller Tabak of the consumer price index report. .
"I'm not going to say it's a bogus number, but if you look at the yield spread between the 10-year Treasury bond and the Treasury Inflation-Protection Security, or TIP, its 2.47%, an indication of inflation," said Peter Cardillo, chief market strategist at Avalon Partners.
The Dow Jones Industrial Average was up 105.52 points, or 0.8%, to 12,937.7, with all but three of its 30 components trading higher.
Hewlett-Packard Co. and Verizon Communications Inc. led the blue-chip advance, with H-P up 4.9% and Verizon Communications Inc. climbing 2.6%.
Caterpillar Inc. and McDonald's Corp. both lost ground, each down nearly 1%.
"There are two reasons why the market is being propelled higher, one is Hillary Clinton won West Virginia by a big margin, so the infighting continues and gives (John) McCain a better edge going forward, and options expirations on Friday -- when you get a market that all of a sudden surges, shorts are forced to cover," said Cardillo.
The S&P 500 gained 10.14 points, or 0.7%, to 1,413.18, with telecommunication services land consumer discretionary leading gains that stretched across all 10 of its industry groups.
Macy's Inc. , helped spark a rise among retailers, with the department-store operator maintaining its full-year profit forecast, while reporting a first-quarter loss.
Shares of oil producers also dipped , along with the price of crude-oil futures, which ended at $125.55 a barrel, down 25 cents. .
The technology-laden Nasdaq Composite climbed 10.47 points, or 0.4, to 2,505.59.
Fueling the broad-based gains was the CPI data from the Labor Department, which credited lower energy costs in helping offset the rising price of food.
"Gasoline down 2% seems a little odd. But it's a decent number. It's a combination of both productivity growth and lower wages that helped bring that number down. People forget when you have an economic slowdown wages don't go up as rapidly," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.
While the tech sector gained overall, shares of Applied Materials Inc. came under pressure, down 1.1%, after the maker of chip-manufacturing equipment reported a 26% decline in quarterly profit and issued a weaker-than-expected outlook. .
Home front
Freddie Mac shares rallied 9.3% after the mortgage-finance company reported first-quarter losses of $151 million, which proved not as bad as analysts expected.
Foreclosures, however, hit new highs in April, up 4% from March and 65% ahead from a year ago, according to Realty Trac. .
Following a series of Federal Reserve speakers on Tuesday, former Fed chief Alan Greenspan told an audience in Asia that U.S. housing prices would bottom out early next year as the market absorbs a buildup in inventories.
In Chicago, futures traders increased their bets the Fed would start raising benchmark interest rates in late October from the current 2%. At mid-morning Wednesday, the November Fed funds futures was pricing in a 56% chance of the Fed hiking its key interest rate by a quarter-point when it meets in late October, to 2.25%, up from 48% odds at the Tuesday's close.
"Restrained inflation is good news for the Fed but data on regional manufacturing due out Thursday may renew worries about the halth of that sector," said Drew Matus, a Lehman Brothers analyst.
Overseas, Asian markets ended mostly higher as investors looked beyond the deadly earthquake that struck the mainland on Monday. .
In Europe, stocks were lifted by deal speculation and the better-than-forecast reading on core U.S. inflation. .
On Wednesday, U.S. equities ended mixed, with the blue chips hit by a cautious second-quarter outlook from Wal-Mart Stores Inc. and tech stocks drawing a late-session lift from reports billionaire Carl Icahn had acquired a significant stake in Yahoo Inc. , potentially in an attempt to force a sale of the Internet search company, which rebuffed would-be acquirer Microsoft Corp. recently.
By Kate Gibson