Better than expected reports on housing, production and consumer prices balance out profit-taking.
June 17, 2003: 1:42 PM EDT
By Meghan Collins, CNN/Money Staff Writer
NEW YORK (CNN/Money) - Stocks failed to break out of a narrow trading range into the afternoon Tuesday, as investors cheered some stronger-than-expected economic data, but fought temptation to take profits.
Just after 1:30 p.m., the Dow Jones industrial average (up 1.35 to 9320.31, Charts), the Nasdaq composite (up 2.07 to 1668.65, Charts) and the S&P 500 (up 1.83 to 1012.57, Charts) tested both sides of unchanged, unable to pick a strong direction.
"We're having a party here," said Ram Kolluri, chief investment officer at GlobalValue Investors. "This is simply a profit-taking aberration."
Wall Street's belief that an economic recovery is bound to happen in the second half of the year held strong, supported by the morning's data. Before the opening bell, the government said consumer prices for May were unchanged after falling 0.3 percent in April. Economists surveyed by Briefing.com expected the Consumer Price Index to decline 0.1 percent. Excluding volatile food and energy costs, the "core" CPI rose 0.3 percent, compared to economists' expected 0.1 percent rise.
Fear of deflation has been lingering in the market for months now, pushing bond yields lower as the Federal Reserve suggested it would keep interest rates low for a long time and the Bush administration appeared to ease its strong dollar policy. The stronger-than-expected CPI reading only served to ease whatever deflationary concerns might have been lurking in the market's mind.
Separately, housing starts jumped 6.1 percent in May to a 1.788 million unit annual rate, which was up from 1.63 million in April and better than the 1.7 million level economists surveyed by Briefing.com were expecting.
Also before the start of trading, the government said the nation's industrial production rose 0.1 percent, better than the flat reading forecast by economists and the 0.5 percent slide in April. Capacity utilization held at 74.4 percent, as expected by economists.
But, despite evidence of a renewed economic recovery, some traders urged caution to longer-term investors.
"I'm somewhat in the cautious camp," Kolluri said. "The rally may continue, but this is exactly how we felt in 1999 and 2000 before we started questioning earnings. I feel there is going to be a reality check somewhere."
AT&T, Microsoft active on Dow
On the corporate side, shares of AT&T (T: down $0.86 to $20.20, Research, Estimates) dropped more than 4 percent, pressuring the Dow, after Merrill Lynch cut its investment rating on the company to "sell" from "neutral."
But fellow Dow member Microsoft (MSFT: Research, Estimates) gave the blue chip index support, rising more than 2 percent, after news that West Virginia has agreed to settle its antitrust case against the company.
Shares of Pfizer (PFE: up $1.78 to $36.38, Research, Estimates) rose for the second day in a row, adding more than 5 percent after the company raised its profit and sales outlook and unveiled a new drug that could help smokers quit. This came on the back of positive news about Pfizer's cholesterol fighting blockbuster Lipitor, which lifted the stock 4.6 percent Monday.
Gold stocks also showed some strength, with the metal itself soaring in price, up $5.30 to $365 an ounce. Shares of Newmont Mining (NEM: up $1.13 to $33.55, Research, Estimates) and Goldcorp (GG: up $0.41 to $12.16, Research, Estimates) gained nearly 4 percent each, and Kinross Gold (KGC: up $0.21 to $7.20, Research, Estimates) rose about 3 percent.
Market breadth was mixed, with losers holding an six-to-five advantage over gainers on both the New York Stock Exchange, where volume stood at 871 million shares. On the Nasdaq, advancing stocks edged out decliners while 1.2 billion shares changed hands.
Bonds fell, the 10-year Treasury note losing 15/32 of a point in price and its yield rising to 3.23 percent. The dollar showed modest strength against the yen and was little changed versus the euro.
Light crude futures lost 17 cents to $29.40 a barrel in New York.
European stock markets closed the day higher, as did Asian stocks overnight.
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