Stocks end day higher, but May is a loss
Wednesday rally can't overcome monthly downturn as uncertainty over course of Fed rate hikes prevails.
NEW YORK (CNNMoney.com) - Stocks bounced back Wednesday after the previous session's sharp selloff, but finished May on a dismal note as investors fretted over the interest rate outlook.
Although May performance could quickly fade into the rear view mirror as markets kick off June with a slew of economic reports.
The Dow Jones industrial average (up 73.88 to 11,168.31, Charts) and the Nasdaq composite (up 14.14 to 2,178.88, Charts) ended Wednesday about 0.7 percent higher, while the broader Standard & Poor's 500 (up 10.25 to 1,270.09, Charts) index added 0.8 percent.
All three major gauges posted declines for the month. In May, the Nasdaq slid 6.2 percent, the Dow lost 1.8 percent and the S&P fell 3.1 percent.
Thursday brings reports on initial jobless claims and productivity at 8:30 a.m. ET, construction spending and the inflation-indicating ISM index at 10 a.m. ET, and a government report on oil and gasoline inventories at 10:30 a.m. ET, as well as sales figures from the automakers throughout the day. Then comes the big employment report set for release Friday.
"Tomorrow will probably be a pretty quiet day in anticipation of the jobs report," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "That is the one area that has helped keep inflation at bay."
Stocks have mostly slumped since May 11, the day after the Dow came within 80 points of its all-time high and the day after the Fed raised its short-term rate target for the 16th straight time.
The 30-stock Dow, the world's most widely watched stock market gauge, has tumbled nearly 500 points, or 4 percent, since fears of rising inflation and slowing economic growth crossed the radar mid-month. The Dow and the other major indexes posted their third-biggest losses of the year in point terms on Tuesday.
Investors focused their attention Wednesday on minutes from the Fed's May 10 meeting, which offered no clear clues about the outlook for interest rates.
"Given the risks to growth and inflation, committee members were uncertain about how much, if any, further tightening would be needed after today's action," the minutes said. (Click here for the full text of the minutes.)
Stocks pared gains after investors took in the mixed message from the Fed but then bounced back in the last half hour of trading.
Treasury prices fell, raising the yield on the benchmark 10-year note to 5.12 percent from 5.07 percent late Tuesday, as investors in the bond market bet that rates are headed higher still. Bond prices and yields move in opposite directions.
U.S. light crude oil for July delivery fell 74 cents to settle at $71.29 a barrel on the New York Mercantile Exchange. Earlier, the front-month contract had fallen as low as $70.05 a barrel after Secretary of State Condoleezza Rice said the United States would open talks with Iran if that country suspended its nuclear activities.
COMEX gold for August delivery sank $11 to settle at $649.50 an ounce.
The dollar rose versus the euro and yen.
Here's a look at what was moving before the close:
Oil stocks rose as crude prices eased their losses. The Philadelphia Oil Service Sector (up $6.50 to $214.16, Research) index gained about 3 percent while the Amex Oil (up $22.29 to $1,098.21, Research) index rose 2 percent.
Merrill also cuts its price target on Google (down $0.12 to $371.82, Research). The Internet bellwether also addressed concerns about its strategy and growth prospects during a conference call in the afternoon.
In M&A news, utility Mirant said late Tuesday it offered about $8 billion to buy NRG Energy, but NRG, an independent power producer, rejected the proposal without entering into discussions.
Network equipment maker ADC Telecommunications (down $4.46 to $17.92, Research) sank 20 percent after it said it agreed to buy smaller competitor Andrew Corp. (up $0.34 to $10.12, Research) for about $2 billion in stock. Andrew shares climbed about 3 percent.
Market breadth was positive. On the New York Stock Exchange, winners beat losers by a margin of three to one on volume of 1.98 billion shares. On the Nasdaq, advancers topped decliners by a margin of nearly two to one as 2.18 billion shares changed hands.
Mixed up Fed
Investors are seeking clear signs of what action the central bank's policy-makers will take when they meet June 28 and 29, but Wednesday's minutes offered didn't meet those expectations.
"They're offering confusing signs. This group is not very good at delivering a uniform message," said Scott Wren, senior equity strategist at A.G. Edwards & Sons. "That's a bad thing, it's confusing the market."
Economists say the Fed has a tough job ahead as it prepares to wind down two years of interest rate hikes and tries to battle what appear to be rising inflationary pressures just as the economy looks set to slow.
That makes it difficult for the Fed to navigate a soft landing for the economy, according to James Stack, president of InvesTech Research. "The importance of the minutes is the Fed is recognizing that the pressures on it are not going away. They realize their job is not done yet," he said.
In other economic news, investors took in a regional manufacturing survey that came in stronger than expected. The Chicago Purchasing Managers Index, a barometer of industrial activity in the Midwest, climbed to 61.5 in May, exceeding expectations from analysts surveyed by Briefing.com for a jump to 56.
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