Stocks finished a seesaw session with solid gains as some positive earnings updates offset accounting concerns at Omnicom (OMC) and charges of insider trading at ImClone Systems (IMCL). As sellers faded in the afternoon, bears covered their short positions and bargain hunters did some shopping.
The Dow Jones industrial average was up 100.40 points, or 1.05%, to 9,617.71, led by Procter & Gamble (PG) and Microsoft (MSFT).
The tech-heavy Nasdaq composite index gained 21.94 points, or 1.47%, to 1,519.12. And the broader Standard & Poor's 500 Index added 6.66 points, or 0.66%, to 1,020.26.
On Thursday, the key economic reports to watch before the market opens are retail sales and a report on inflation at the wholesale level. Many economists expect overall retail sales to decline 0.2%. While consumer spending still appears to be on solid ground, S&P MMS thinks it would not be surprising to see some pullback.
S&P MMS expects the overall producer price index (PPI) to drop 0.1% in May, while the core index should rise 0.1%. Recent decelerating trends in earnings and the current lack of corporate pricing power indicate that inflation poses little threat for the near-term Fed outlook, says S&P MMS.
On Wednesday, ImClone Systems' former chairman and CEO, Sam Waksal, was arrested in New York and charged with securities fraud on alleged insider trading violations. Prosecutors charge that Waksal tipped off two people to sell the company's stock the day before the FDA rejected its application for its cancer drug Erbitux. The biotech stock was down most of the day, but then rallied into the close.
The big loser of the day was advertising and marketing services company Omnicom. The stock plummeted nearly 20% on a Wall Street Journal report that the company's Web stakes are sparking controversy among board members. The company disputed the report, but investors sold the stock anyway.
A few companies issued upbeat earnings guidance for the current quarter. Procter & Gamble says it expects fourth quarter core EPS from operations to grow in the high teens range, exceeding current Street estimates. The consumer products giant sees fourth quarter sales (excluding foreign exchange translations) growing in the mid-to-high single digit range.
Maytag (MYG) also raised its EPS projection for the second quarter.
But Safeway (SWY) fell after it lowered second quarter operating EPS guidance to a $0.71-$0.73 range, which is 5%-8% below existing estimates. It also cut 2002 EPS forecast to $2.86-$2.90. The supermarket chain cited the continued soft economy and rising competition.
Monsanto (MON) and Dow Jones (DJ) also lowered earnings forecasts for the current quarter.
Some tech stocks were also under pressure. Juniper Networks (JNPR) was down after Morgan Stanley downgraded it to underweight from equal-weight due to negative news, lack of valuation support, and potential selling pressure on stock related to the Unisphere acquisition.
Goldman Sachs says it cut its second quarter license revenue growth projection for Siebel Systems (SEBL), given that comments from management at various investor conferences have been cautious in tone, indicating business this quarter is at least as difficult as the first quarter.
In merger news, Univision Communications (UVN) agreed to acquire Hispanic Broadcasting (HSP) for $3.5 billion.
Treasuries ended higher as traders shrugged off the wavering stock market.
In economic news Wednesday, import prices were flat, while export prices fell 0.1% in May. The U.S. trade price data were weaker than expected due to a surprisingly modest 0.9% gain in petroleum prices. The data will be used to fine tune second quarter GDP forecasts, but will have no impact on the markets, says S&P MMS.
Meanwhile, the Federal Reserve's Beige Book, which describes economic conditions in the 12 Fed districts, indicated the expansion is "modest but uneven." Various regions reported improvement in manufacturing and service industries, though the demand for labor remained "slack." But there was some increased demand for temporary workers in some regions. The report was in line with expectations and doesn't suggest any immediacy in a rate hike, says S&P MMS.
European markets tumbled in the wake of Tuesday's U.S. market decline. In London, the Financial Times-Stock Exchange 100 index ended down 83.10 points, or 1.68%, to 4,851.70 on worries about corporate earnings.
In France, the CAC 40 declined 104.61 points, or 2.55%, to 4,004.76. And in Germany, the DAX Index fell 95.90 points, or 2.08%, to 4,510.19, after a survey of companies showed German executives are scaling back investment and hiring plans.
In Asia, the markets finished lower. The Nikkei fell 122.38 points, or 1.07%, to close at 11,327.06. In Hong Kong, the market fell 67.05 points, or 0.60%, to close at 11,147.97.