Wall Street pulls off a rally
Stocks jump despite record crude oil prices and big quarterly loses in the financial sector.
NEW YORK (CNNMoney.com) -- Stocks gained Tuesday as investors looked beyond record-high oil prices and big losses at financial firms and instead continued to bet that the economy is stabilizing and the worst of the credit crisis is over.
The Dow Jones industrial average (INDU) added 0.4%. The broader Standard & Poor's 500 (SPX) index gained 0.8% and the Nasdaq composite (COMP) gained 0.8%.
After the close, Cisco Systems (CSCO, Fortune 500) reported quarterly sales and earnings that topped forecasts, sending shares 2% higher in extended-hours trading.
No market-moving earnings reports are expected Wednesday. Economic news on the docket includes the March pending home sales index and the weekly oil inventories report.
Stocks fell Tuesday morning as oil prices spiked to a record $122.35 a barrel and Fannie Mae and other financial firms reported big quarterly losses. But the market stabilized by midday, as investors looked beyond rising crude prices and opted to scoop up technology and financial shares.
"For some reason the markets just don't care that oil is at $122 a barrel," said Tom Schrader, managing director at Stifel Nicolaus. "I think maybe they're reading it as the oil market is up because global demand remains strong, which is good for the U.S. economy."
The run up in oil prices gave a boost to oil services stocks. Meanwhile, tech stocks bounced back as investors bet that a Microsoft-Yahoo teaming could end up happening after all, despite news Monday that the software leader had walked away from a possible purchase of the Internet company.
Stocks have been on a tear since mid-March, rising nearly 15% off the lows, as investors have started to bet that any recession will be mild and that the Federal Reserve's monetary actions are starting to work. That optimism should continue to help stocks later this year, but stocks might retreat a bit in the very short term, Schrader said.
"I wouldn't be surprised to see a bit of a pullback over the next 4 to 6 weeks," he said. "But then that would set us up for a short summer rally."
Company news: Yahoo (YHOO, Fortune 500) added 5.5% as investors bet that the Microsoft (MSFT, Fortune 500) deal might end up going through after all. Earlier, the company's largest shareholders expressed anger that CEO Jerry Yang couldn't reach a deal with the software leader. (Full story)
Fannie Mae (FNM, Fortune 500) reported a steeper-than-expected quarterly loss due to increasing mortgage defaults and ongoing problems in the credit markets. Fannie Mae also said it's cutting its dividend and will raise $6 billion in capital through a stock sale.
Looking forward, the mortgage financier said it expects severe weakness in the housing market in 2008. However, the stock gained nearly 9%.
UBS (UBS) reported a steep quarterly loss amid the U.S. subprime fallout, and said that it was cutting about 7% of its workforce, or roughly 5,500 jobs. UBS also said that it was selling $15 billion in subprime and other mortgage-based debt from its portfolio to BlackRock (BLK, Fortune 500). Shares lost 1.5%.
D.R. Horton (DHI, Fortune 500) reported a big fiscal second-quarter loss and cut its dividend in half. Shares gained 5.5% nonetheless.
Target (TGT, Fortune 500) said it is selling almost half of its credit card receivables to JP Morgan Chase (JPM, Fortune 500) for about $3.6 billion as a means of raising cash.
In other news, Federal Reserve Chairman Ben Bernanke said the spike in foreclosures are a result of falling home prices and require a big government and private-sector response.
Commodity prices: U.S. light crude oil for June delivery rose $1.87 to settle at $121.84 a barrel on the New York Mercantile Exchange, a record settlement price. Earlier, oil hit a new record trading high of $122.73 a barrel.
A Goldman Sachs analyst said Tuesday that oil prices could reach $150 to $200 within the next six months to two years due to supply shortages.
COMEX gold for June delivery rose $3.60 to $877.70 an ounce.
The national average price for a gallon of regular unleaded gas slipped to $3.610 from $3.611 the previous day, according to AAA. It was the fifth day in a row of declines after gas prices hit records for 17 straight days.
Other markets: The dollar fell versus the euro and the yen.
Treasury prices slipped, raising the yield on the benchmark 10-year note to 3.92% from 3.86% late Monday. Bond prices and yields move in opposite directions. 
