Stocks Surge on Mild Inflation Data
Stocks finished broadly higher Tuesday, boosted by surprisingly soft data on wholesale inflation and regional business activity. The tame figures could help deter the Federal Reserve from raising interest rates further, says Action Economics.
The Dow Jones industrial average rose 132.39 points, or 1.19%, to 11,230.26. The broader Standard & Poor's 500 added 17.35 points, or 1.37%, to 1,285.56, its highest closing level since June 2. The tech-heavy Nasdaq composite climbed 45.97 points, or 2.22%, to 2,115.01.
NYSE breadth was decidedly positive, with 29 issues advancing for every 5 declining, while Nasdaq breadth was 23-7 positive. Trading was moderate.
A mild inflation report was in focus Tuesday. The producer price index (PPI) crept higher by 0.1% in July, while the core PPI fell 0.3%, much softer figures than expected. On a year-over-year basis, the core rate declined from 1.9% to 1.3%. The numbers weighed on Treasury yields and the dollar, says Action Economics.
However, the PPI's softness probably won't carry over to Wednesday's consumer price index data, analysts say. "We believe it is unlikely that tomorrow's CPI report will be as benign as the PPI report since the core CPI is being pressured by services prices, particularly the cost of shelter, rather than goods prices," says John Ryding, chief U.S. economist at Bear Stearns.
Separately, the New York Fed's Empire State index fell unexpectedly to 10.34 in August from 16.5 in July. The National Association of Home Builders' housing-market survey fell to a 15-year-low of 32 in August from 39 in July.
On the economic docket Wednesday, the overall CPI is projected to rise 0.4%, while the core CPI edges up 0.2%, says Action Economics. Investors will also be digesting data on July housing starts and industrial production.
In corporate news, Wal-Mart (WMT) was lower after the retail giant reported a 26% drop in second-quarter profit due to costs associated with the sale of its German unit.
Home-improvement store chain Home Depot (HD) was higher after the company posted a 5.3% increase in second-quarter earnings.
Companies set to report quarterly results Wednesday include Dow member Hewlett-Packard (HPQ)
Elsewhere Tuesday, Dell (DELL) was higher despite news the computer maker is recalling 4.1 million lithium PC batteries made by Sony (SNE) because of a fire danger.
In deal activity, General Electric (GE) was higher after the company agreed to buy Kinder Morgan's (KMI) natural-gas retail distribution unit for $710 million.
Shares of Google (GOOG) rose after the Internet search heavyweight purchased the google.cz domain name. The company also announced a free service to allow local businesses to offer printable coupons through Google Maps.
On the analyst front, Citigroup upgraded Southwest Airlines (LUV) and American Airlines parent AMR (AMR) from hold to buy.
In the energy markets Tuesday, September West Texas Intermediate crude oil futures closed down 48 cents at $73.05 a barrel as the Mideast ceasefire continued for a second day.
European markets finished higher. In London, the Financial Times-Stock Exchange 100 index gained 27 points, or 0.46%, to 5,897.9. Germany's DAX index climbed 84.8 points, or 1.49%, to 5,776.8. In Paris, the CAC 40 index was up 68.09 points, or 1.35%, to 5,115.02.
Asian markets finished slightly lower. Japan's Nikkei 225 index declined 40.92 points, or 0.26%, to 15,816.19. In Hong Kong, the Hang Seng index inched down 15.94 points, or 0.09%, to 17,274.07. Korea's markets were closed for a holiday after the Kospi index on Monday advanced 3.01 points, or 0.23%, to 1,295.11.
Treasury yields dropped after the tame readings of the producer price and Empire State indexes. The 10-year note rose in price to 99-18/32 for a yield of 4.93%, while the 30-year bond climbed to 91-20/32 for a yield of 5.05%.