After drifting back and forth most of the day, stocks shot higher in the last hour of trading Wednesday, with technology stocks leading the way.
The Dow Jones industrial average gained 84.5 points, or 0.81%, to 10,479.57. The broader Standard & Poor's 500 index was up 9.65 points, or 0.85%, to 1,144.06. The tech-heavy Nasdaq composite index climbed 26.83 points, or 1.35%, to 2,020.98.
The major averages advanced, even though there wasn't a particular news event and volume was still lackluster, notes Art Hogan, chief market analyst at Jefferies & Co. "My guess is there's some pent-up demand for stocks -- we're just waiting for the first person to jump in -- and I think that starts next week," he says. Hogan notes that now that the market has discounted higher interest rates from the Federal Reserve, investors will probably react positively to upcoming earnings news.
There's "sentiment building that beneath dampeners of Iraq turmoil and caution prior to the Federal Open Market Committee meeting lies latent market strength on back of strong earnings," says Standard & Poor's MarketScope.
After a lack of economic data so far this week, an update of durable goods orders for May will be released early Thursday. Traders will also get their weekly dose of initial jobless claims, plus a read on new home sales for May.
Companies on Thursday's earnings calendar include Apollo Group (APOL), Nike (NKE), Family Dollar Stores (FDO), Rite Aid (RAD), Paychex (PAYX), PalmSource (PSRC), and more.
On Wednesday, Internet software stocks led the way higher, with Ask Jeeves (ASKJ) out in front, up 8%, on an upgrade by a Jefferies analyst to buy from hold.
Among other market sectors, telecom equipment makers were gaining ground on bullish sentiment spurred by SBC's (SBC) plan to spend $4 billion to $6 billion on broadband access, Digital TV, and VoIP over the next 5 years. Shares of Juniper Networks (JNPR), JDS Uniphase (JDSU), and Broadcom (BRCM) rallied.
Also helping the group was 3Com (COMS), which reported a narrower May quarter loss of 5 cents per share, vs. an 11-cent loss a year ago, on 4.8% sales rise. The company expects first-quarter total revenues to be flat to slightly up sequentially.
Home builders also got a boost on a report that Merrill Lynch has reinstated coverage on a number of homebuilders, and gave Pulte Homes (PHM) a buy rating.
Food distributors were in the red after Performance Food Group (PFGC) lowered its second-quarter earnings forecast, citing lost margin in its food service business, retooling of plants, and roll-out of a new product. In addition, several Wall Street firms downgraded the stock.
Among stocks on the move Wednesday, Career Education (CECO) plunged nearly 25% after the company received notice of a formal SEC investigation. Merrill Lynch downgraded the stock to neutral from buy, while Bear Stearns lowered its rating to peer perform from outperform.
Wal-Mart's (WMT) stock was down another 1% after Tuesday's news that a federal judge granted class-action status to a sex-discrimination lawsuit against the giant retailer.
RJ Reynolds (RJR) shares rose after the FTC closed its investigation and will not challenge RJR's plan to buy the U.S. business of Brown & Williamson Tobacco, owned by British American Tobacco (BIT). RJR sees the deal generating $500 million in synergies within 18 to 24 months. RJR says the new company will pay $400 million to buy Lane Ltd.
In other merger news, eBay (EBAY) agreed to buy Indian online-auction site Baazee.com for $50 million.
FedEx (FDX) shares rose after the company posted fourth-quarter earnings per share of $1.33, vs. 92 cents a year ago, on a 21% revenue rise. The delivery company sees EPS of 90 cents to $1.00 for the first quarter and $4.20 to $4.40 for fiscal year 2005. It cited a broad-based economic improvement across many sectors in the U.S. and world economies.
Other companies reporting earnings Wednesday were Bed Bath & Beyond (BBBY), Micron Technology (MU), Kerr-McGee (KMG), and Worthington Industries (WOR).
Treasury prices rose amid solid results for the auction of $25 billion in two-year notes. Word spread ahead of the solid auction results and the market pre-priced the indirect bidder windfall, driving the benchmark 10-year note yield down from the 4.73% area briefly below 4.69%, before settling at 4.70%, says Action Economics.
European stock markets finished higher. London's FTSE 100 index was up 18.2 points, or 0.41%, to 4,486.7, with help from tobacco stocks. British American Tobacco (BTI) was higher after the U.S. Federal Trade Commission approved the merger between RJ Reynolds (RJR) and BAT's Brown & Williamson unit.
Germany's DAX index rose 19.82 points, or 0.54%, to 3,945.1 even though German industrial production rose 1.4% in April, down from 2.2% in March. In Paris, the CAC 40 index gained 19.82 points, or 0.54%, to 3,720.14.
Asian markets finished mixed Wednesday. In Japan, the Nikkei index lost 0.71 points, or 0.01%, to close at 11,580.56. Banks led losers as Japan's 10-year bonds saw their sharpest fall in nearly a week. Analysts said trading was cautious as investors await the key Bank of Japan's Tankan business confidence survey, due out July 1, and the interest rate decision from the U.S. Federal Open Market Committee next week, says Standard & Poor's MarketScope.
In Hong Kong, the Hang Seng index gained 4.18 points, or 0.04%, to close at 11,849.77 powered by gains in China plays. China-related stocks rose after Premier Wen Jiabao said the government is confident of achieving a soft landing, easing concerns about an interest rate hike, says Standard & Poor's MarketScope.