Stocks finished sharply higher Tuesday, buoyed by short-covering, a surprisingly strong retail sales report and a drop in crude futures. Volume rose ahead of Fed Chairman Ben Bernanke's first testimony to Congress on Wednesday, says Standard & Poor's MarketScope.
The Dow Jones industrial average climbed 136.07 points, or 1.25%, to 11,028.39, crossing the pyschologically important 11,000 mark for the first time since Jan. 12. It was the blue-chip benchmark's biggest one-day rise since Jan. 3. The broader Standard & Poor's 500 index rose 12.67 points, or 1%, to 1,275.53. The tech-heavy Nasdaq composite index added 22.36 points, or 1%, to 2,262.17.
Market players sense there won't be any big surprises during Bernanke's initial monetary policy testimony. "He'll touch broad topics and I think he'll his hedge his bets from an interest-rate standpoint," says Jay Suskind, co-head of capital markets at Ryan Beck. "He'll be a little Greenspan-esque in his delivery."
Bernanke is expected to tell Congress the economic expansion is strong and that the Fed has work to do to minimize inflation risks. "He will probably stress the policy path is highly dependent on the outlook, but also indicate significant additional firming is unlikely," says Richard Berner, chief U.S. economist at Morgan Stanley.
The markets are anticipating a rise in interest rates to 5% in May, economists say. Bernanke will point to the need for continued rate hikes based on economic data suggesting potential inflationary pressures, says Kathleen Camilli, president of Camilli Economics.
A report early Tuesday showed that U.S. retail sales climbed a hefty 2.3% in January, more than twice the anticipated increase. In December, sales rose a revised 0.4%. Excluding autos, January sales rose 2.2%, vs. a 0.2% rise in December.
In other retail news, Citigroup upgraded electronics retailer Circuit City (CC) from hold to buy. The broker said it expects another two to three years of abnormal earnings growth. The stock rose more than 2% in Tuesday's session.
Separately on the economic front, business inventories rose 0.7%, well over expectations. In Wednesday's data, January industrial production is forecast to rise 0.1%, says Action Economics. Also Wednesday, the National Association of Home Builders releases its survey for February, ahead of a housing starts report Thursday.
In corporate news, Coca-Cola (KO) said billionaire investor Warren Buffett won't stand for reelection to its board of directors. Buffett's Berkshire Hathaway reportedly will continue to retain its holdings of stock in the soft drink maker.
Automaker General Motors (GM) reportedly aims to spend $500 million and add between 200 and 300 jobs as it upgrades five Michigan plants. The stock was modestly higher.
Internet search giant Google (GOOG) was down nearly 1% after sliding nearly 5% in Monday's session. A report had indicated the company's share price could be cut in half over the next year.
Tech bellwether Cisco (CSCO) updated price targets on its $6.5 billion debt offering, thought to be the largest corporate investment-grade deal of its kind, says Action Economics.
Diversified manufacturer 3M (MMM) was up 1% after boosting its quarterly dividend 9.5% and announcing a $2 billion stock buyback program.
Chipmaker Advanced Micro Devices (AMD) rose more than 3% following a UBS upgrade from reduce to neutral.
Earnings releases continue to trickle out as the season winds down. Big-name companies reporting results Wednesday include Hewlett-Packard (HPQ). Dell (DELL), JC Penney (JCP) and Target (TGT) report Thursday.
In the energy markets Tuesday, March West Texas Intermediate crude oil futures closed down $1.67 at $59.57 per barrel, a six-week low. Wednesday's inventory report is expected to show crude supplies rose 2 million barrels, says S&P MarketScope.
European markets finished narrowly mixed. In London, the Financial Times-Stock Exchange 100 index edged lower 1.2 points, or 0.02%, to 5,792.3. Germany's DAX index rose modestly 7.07 points, or 0.12%, to 5,763.4. In Paris, the CAC 40 index gained 3.98 points, or 0.08%, to 4,961.34.
Asian markets ended higher. Japan's Nikkei 225 index rose 307.21 points, or 1.93%, to 16,184.87. In Hong Kong, the Hang Seng index added 108.23 points, or 0.71%, to 15,420.32. Korea's Kospi index was up 7.42 points, or 0.52%, to 1,328.21.
The strong retail sales data put upward pressure on yields, says Action Economics. Prices for 10-year Treasury notes were lower at 99-03/32 with a yield of 4.61%, while 30-year bonds fell to 98-15/32 for a yield of 4.59%. The yield curve was inverted.