Stocks finished higher Tuesday, as good news from a tech bellwether and retreating bond yields helped investors overlook disappointing retail sales data. The investment banking sector led gainers on the back of an upbeat earnings report, while homebuilding and some financial stocks were also strong, says Standard & Poor's MarketScope.
The Dow Jones industrial average rose 75.32 points, or 0.68%, to 11,151.34, its highest close since June, 2001, helped by Alcoa (AA), Home Depot (HD) and 3M (MMM). The broader Standard & Poor's 500 index gained 13.35 points, or 1.04%, to 1,297.48, its best since May, 2001. The tech-heavy Nasdaq composite index rallied 28.87 points, or 1.27%, to 2,295.9.
Tame economic readings ahead might persuade the Federal Reserve to hold at 4.75% to 5%, analysts say. "We expect softer numbers in coming months as the economy loses the boost from the bounceback from the hurricane-depressed fourth quarter," says Jan Hatzius, chief economist with Goldman Sachs.
Richard Berner, chief U.S. economist at Morgan Stanley, says the real risks continue to be either a supply-shock induced spike in energy prices that would hobble growth or higher inflation that would trigger more aggressive Fed tightening. He thinks the Fed may continue its tightening cycle longer than investors had hoped. "We now expect the Fed to increase the federal funds rate to 5.25% by September rather than stop at 5%," he says.
Internet search giant Google (GOOG) added to investors' cheer in the final hours Tuesday. A federal judge sparred with government attorneys over whether a Justice Dept. subpoena for Google's search data would be burdensome.
Investment bank Goldman Sachs (GS) saw its shares climb after posting 62% higher first-quarter profits, topping Wall Street forecasts. Lehman Brothers (LEH) rose, as well, ahead of its Wednesday earnings report.
Disappointing guidance from Procter & Gamble (PG) was also in focus. The world's biggest consumer products manufacturer trimmed its third-quarter sales-growth target late Monday.
Among other companies in the news, Comcast (CMCSA) was reportedly in talks to buy the remaining 40% of E! stock it doesn't already own from Disney (DIS). Both stocks rose.
Burrito chain Chipotle Mexican Grill (CMG) surged after reporting unexpectedly strong fourth-quarter earnings of 16 cents a share.
On the brokerage front, Bear Stearns boosted brewer Anheuser-Busch (BUD) from underperform to peer perform.
Market players eyed the mostly upbeat corporate news amid lackluster economic data. Retail sales fell 1.3% in February, below expectations, says Action Economics. Excluding automobiles, retail sales fell only 0.4%, in line with estimates.
Elsewhere, the fourth-quarter current account deficit hit a record $224.9 billion. January business inventories rose 0.4%, slightly more than expected.
On the economic docket Wednesday, import prices are expected to fall 0.6% for February, while export prices drop 0.2%, says Action Economics. The Fed's Beige Book will also be in focus ahead of the next FOMC meeting on interest rates.
In the energy markets Tuesday, April West Texas Intermediate crude oil futures closed $1.33 higher at $63.10 a barrel amid worries about Iran.
European markets finished mostly higher. In London, the Financial Times-Stock Exchange 100 index edged lower 2.2 points, or 0.04%, to 5,950.6. Germany's DAX index rose 15.72 points, or 0.27%, to 5,870.88. In Paris, the CAC 40 index added 9.69 points, or 0.19%, to 5,117.16.
Asian markets finished lower. Japan's Nikkei 225 index fell 123.15 points, or 0.75%, to 16,238.36. In Hong Kong, the Hang Seng index slipped 22.31 points, or 0.14%, to 15,519.3. Korea's Kospi index lost 11.98 points, or 0.9%, to 1,326.3.
Treasury yields subsided from 20-month highs. Prices for 10-year Treasury notes closed higher at 98-13/32 with a yield of 4.70%, while 30-year bonds rose to 96-20/32 for a yield of 4.71%.