bulls gain upper hand
Bulls gain upper hand, for now More choppy trading seen ahead as uncertainty over rate outlook abounds; oil, gold prices sink. By Grace Wong, CNNMoney.com staff writer May 24, 2006: 5:27 PM EDT
NEW YORK (CNNMoney.com) - Stocks edged higher Wednesday after a day of volatile trading, but investors remained jittery about the interest rate outlook, suggesting more stormy sessions ahead.
The Dow Jones industrial average (up 18.97 to 11,117.32, Charts) and the broader Standard & Poor's 500 index (up 1.99 to 1,258.57, Charts) both posted slim gains.
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The Nasdaq composite (up 10.41 to 2,169.17, Charts) added 0.5 percent.
Stocks bounced around both sides of breakeven most of the session as investors took in mixed readings on the economy and sinking crude and gold prices. But in the final half hour of trading, renewed buying interest lifted stocks.
The gains were slight though, when compared to the losses stocks have racked up since the Federal Reserve hiked interest rates for the 16th straight time on May 10.
The blue-chip Dow, which had come about 80 points within reach of its all-time high, has lost more than 500 points, or about 4.5 percent, since then. The tech-fueled Nasdaq, meanwhile, has lost about 8.5 percent since hitting its highest level in more than five years last month.
Gus Faucher, director of macroeconomics at Moody's Economy.com, said investors are in for a roller coaster ride. "I think until we get a better idea of where the Fed is going, we're not likely to see any kind of discernible pattern [in the stock market]," he said.
On Thursday, investors will take in a preliminary reading of first-quarter gross domestic product, the broadest measure of the nation's economic activity, due before the market open. A report on existing home sales in April also is slated for release.
As of 5 p.m. ET, Nasdaq and S&P futures pointed to a flat to slightly positive opening for stocks Thursday.
Economic reports mixed Since the Federal Reserve said in its last policy statement that future rate increases would be "data dependent," investors have closely scrutinized each piece of economic news, looking for clues about the Fed's rate-boosting campaign.
"Investors are trying to get a picture of what the Fed's next move might be," said Eugene Peroni, senior managing director at Claymore Advisors.
On Wednesday, the government reported durable goods orders -- big ticket items meant to last three years or more years -- fell 4.8 percent in April, a much sharper drop than the 0.5 percent fall decline forecast by economists surveyed by Briefing.com. The decline marked the first slide in orders since January.
A report on housing, however, showed new home sales unexpectedly rose 4.9 percent in April, suggesting underlying strength in the real estate sector. But March's reading was sharply revised lower, making the month-over-month gain less significant.
The Fed has steadily raised interest rates since June 2004 in a bid to contain inflation, and some investors and policy-makers are nervous the central bank could overshoot, pushing rates too high and hurting economic growth - and corporate earnings.
What moved? Winners and losers were nearly evenly split on the Dow 30, with 16 components gaining.
General Motors (up $2.03 to $26.51, Research) was the biggest advancer. The stock soared 8 percent after Merrill Lynch upgraded its rating on the automaker to "buy" from "neutral," according to Briefing.com.
U.S. light crude oil for July delivery sank $1.90, or nearly 3 percent, to settle at $69.86 a barrel on the New York Mercantile Exchange. The government's weekly inventory report showed supplies of gasoline rose more than expected.
Oil shares dragged, with the Philadelphia Oil Service Sector (down $3.18 to $202.81, Research) index declining 1.5 percent.
COMEX gold fell $37.70 to $636 an ounce, which hurt metal stocks. The Amex Gold Bugs (down $12.76 to $312.03, Research) index tumbled nearly 4 percent.
Among other stock movers, shares of Vonage (down $2.15 to $14.85, Research), a pioneer in phone service over the Internet, sank about 13 percent in its market debut. The company priced its IPO shares in the midpoint of its estimated range.
Borders Group (down $1.23 to $21.26, Research) fell more than 5 percent after reporting late Tuesday a wider-than-expected loss due to weak sales.
Payless Shoesource (up $3.77 to $24.65, Research) surged 18 percent after it said its profit rose in the first-quarter from the same period a year ago.
Dreamworks Animation (up $1.51 to $27.10, Research) jumped 6 percent after Soleil Securities raised its rating on the film studio to "buy" from "hold," according to Briefing.com.
Market breadth was negative. On the New York Stock Exchange, decliners beat advancers by a margin of three to two on volume of 2.25 billion shares. On the Nasdaq, losers topped winners by a margin of eight to seven as 2.64 billion shares changed hands.
Treasury prices were lower, raising the yield on the 10-year note to 5.04 percent, up from 5.03 percent late Tuesday.
Early in the session, the yield on the 10-year note fell as low as 4.99 percent, putting the closely watched benchmark below the key short-term rate set by the Federal Reserve in a situation known as an inverted yield curve, which some economists say is a warning sign of an economic downturn.
In currency trading, the dollar edged higher against the euro and rose versus the yen.
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