Stocks closed higher Tuesday, though off their best levels of the session. The market, which spent nearly the entire session in positive territory, began eroding late in the session as profit-taking kicked in.
Though the indexes ended in positive territory, the lack of follow-through and relatively light volume indicates an absence of investor conviction. Positive sentiment brought on by the belief that the Fed will continue to cut interest rates was at odds with reports showing a weaker than expected reading from Chicago-area purchasing managers and a decline in consumer confidence.
The market appears to be caught in a trading range where strength or weakness is met with selling or buying activity the following session. "We've seen this pattern before," points out Larry Rice, chief investment officer for Josephthal & Co. "We have one or two good days a week and that's it." The strategist believes that it would take more positive signs from corporate America to snap the market out of its range. Continued interest rate cuts would help too, he says. "People are looking for some guidance that more than one company sees something out there at the end of the tunnel."
On the economic front, U.S. personal income rose 0.3% in June while spending gained 0.4%, lowering the core savings rate to 1.1% from 1.2% in May. Both income (+0.2%) and spending (+0.3%) were unrevised in May. The data are slightly firmer on both counts compared with forecasts and May results. Standard & Poor's MMS says going forward these numbers are likely to be skewed by tax rebates, which should boost consumption down the road, providing support for personal income, a pillar of the U.S. economy.
Among Tuesday's stocks in the news, XTRA Corp. (XTR ) agreed to be acquired by Berkshire Hathaway in a deal valued at about $590 million. In the deal, XTRA shareholders would receive $55 in cash per share.
The Dow Jones Industrial Average was up 121.09 points, or 1.16%, to 10,522.81. The tech-heavy Nasdaq Composite gained 9.28 points, or 0.46%, to 2,027.12. The broader S&P 500 Index gained 6.70 points, or 0.56%, to 1,211.22.
Treasuries made the best of another bad batch of data Tuesday, chalking up gains on hopes that the Fed may be bounced into easing more aggressively. Both consumer confidence and Chicago manufacturing data were weaker than expected. The Chicago PMI was particularly surprising and has many economists making downward revisions to their NAPM estimates. These negative economic data give the Fed more justification to continue to ease monetary policy, aiding the short end of the yield curve.
Treasuries will continue to watch stocks as bond traders begin to look ahead to NAPM and construction spending data Wednesday.
European markets closed higher. In London, the Financial Times 100 gained 82.40 points, or 1.51%, to 5,529.10. In France, the CAC 40 Index was up 51.80 points, or 1.03%, to 5085.51. Germany's DAX Index was up 69.00 points, or 1.19%, to 5861.19.
Asian markets ended mixed. In Japan, the Nikkei lost 281.50, or 2.43%, to close at 11,860.77. The Hang Seng Index shed 230.03 points, or 1.90%, to close at 12,316.69.
By Alan Hughes in New York