NEW YORK (CNN/Money) -
U.S. stocks staged a recovery by the close Tuesday, reversing a steep loss caused by news that the country's terror alert level was raised, a report of mad cow disease in Canada, and more consolidation after the market's two-month rally.
After the close of trade, Hewlett-Packard (HPQ: up $0.17 to $17.05, Research, Estimates) reported quarterly earnings of 29 cents per share, 2 cents better than expected and up from a year earlier. Shares rose $1.35 to $18.40 in after-hours trade.
"Hewlett-Packard had good earnings so that should help the techs tomorrow," said Donald Selkin, director of research at Joseph Stevens. "The other companies reporting tomorrow aren't usually market movers. Greenspan also speaks to Congress, which people will be looking at, but I don't think he'll say anything too surprising. So the hope is that HP earnings will take center stage."
However, he cautioned that as stocks remain overbought on a technical basis after almost five weeks of gains, the market will still be vulnerable to selling, particularly as the Standard & Poor's 500 struggles to get past 950, a key resistance level.
Wednesday brings earnings reports from a few retailers, including Polo Ralph Lauren (RL: Research, Estimates), Talbots (TLB: Research, Estimates), and Petco (PETC: Research, Estimates).
In addition, Federal Reserve Chairman Alan Greenspan will testify before Congress Wednesday on the health of the U.S. economy. He will likely be asked about the falling dollar and the threat of deflation, concerns that have spooked investors of late.
Tuesday's market
The major indexes closed out a volatile session little changed. An early surge in the Dow Jones industrial average (down 2.03 to 8491.36, Charts), sparked by a strong earnings report from Home Depot, gave way to weakness in McDonald's after the discovery of mad cow disease in Canada, before the index recovered late in the day to end nearly unchanged. The Nasdaq composite (down 1.68 to 1491.09, Charts) and the S&P 500 index (down 1.04 to 919.73, Charts) followed similar trajectories.
All three indexes hit their lowest levels of the session after it became known that the U.S. government raised the terror alert status to "high" or "orange" from "elevated" or "yellow." The change was due to increased talk picked up by U.S. intelligence suggesting terrorists may be planning an attack inside the United States after several deadly bombings in the Middle East and North Africa in the past week.
However, stocks recovered once the initial shock wore off, with buyers jumping back in by the close.
Stocks had fallen sharply Monday on concerns about the weak dollar. However, the dollar stabilized overnight and continued to show some resilience against the other major currencies Tuesday.
"I don't think people have set aside dollar concerns long-term or even intermediate-term, but definitely right now, short-term, people have calmed down about it," said Tom Schrader, head of listed trading at Legg Mason.
McDonald's hit by mad cow scare
Dow 30 stock McDonald's (MCD: down $1.21 to $16.95, Research, Estimates) shed 6.7 percent, leading the list of beef-focused restaurant stocks falling on a report that one case of mad cow disease has been identified in Canada. For more details, click here.
Additionally, big drugmakers lost value for the second day in a row after a Supreme Court ruling approved a program in Maine to lower prices on prescription drugs. Dow stock Merck (MRK: down $1.66 to $54.99, Research, Estimates), along with Pfizer (PFE: down $0.70 to $31.10, Research, Estimates) and Bristol-Myers Squibb (BMY: down $1.10 to $23.35, Research, Estimates), all declined.
Countering the negativity was a 9.2 percent surge in Home Depot (HD: up $2.60 to $30.67, Research, Estimates) after the company reported first-quarter results that edged expectations. Moreover, the home improvement retail chain reaffirmed its earnings estimates for the full year.
The news gave investors some much needed encouragement, especially coming on the heels of a disappointing report and outlook from Home Depot's biggest rival, Lowe's (LOW: down $1.30 to $39.00, Research, Estimates), whose stock tumbled 9 percent Monday. Initially, stocks had rallied fairly broadly following Home Depot's report.
Market breadth was mixed, with winners beating losers 9 to 7 on the New York Stock Exchange, where 1.49 billion shares traded. On the Nasdaq, volume stood at 1.67 billion shares, with decliners edging advancers.
Bonds rose. The 10-year Treasury note rallied 1-4/32 of a point in price, its yield slipping down to 3.35 percent.
Gold climbed $2.10 to $366.50 an ounce in New York. Light crude oil futures rose 12 cents to $28.41 a barrel in New York.
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