Stocks strike back
A recovery in the hard-hit tech sector, strength in oil, gas and gold stocks help the broader market bounce back after a tough morning.
NEW YORK (CNNMoney.com) -- Stocks snapped back Tuesday, recovering after a tough session marred by worries about corporate earnings. Upbeat news in the chip sector and strength in oil and gold stocks were among the factors leading the comeback.
The Nasdaq composite (Charts) added around 0.6 percent after having fallen as much as 1 percent through the early afternoon.
Stocks had slipped through the early afternoon in response to some earnings warnings in tech, inflation concerns and geopolitical issues. However, some improved profit guidance from chipmaker KLA-Tencor in late afternoon got the ball rolling in the right direction, lifting a slew of other chip and tech stocks.
Bond prices rose, lowering the corresponding yields, while the dollar was mixed versus other major currencies. Oil, gas and gold prices rose, and gave a lift to the underlying stocks.
After the close, Genentech (Charts) reported quarterly earnings that rose from a year ago and beat estimates thanks to strong sales of its colon cancer treatment Avastin. However, analysts were expecting even stronger sales of the drug, and the stock slipped in extended-hours trading.
In addition to keeping an eye on earnings news Wednesday, investors will by attuned to the May trade balance, due in the early morning, and the weekly oil inventories report, due shortly after the start of trading.
As of 5:30, Nasdaq and S&P futures pointed to a slightly higher open for stocks, when fair value is taken into account.
Technology had led a broader market selloff all morning and through the afternoon, with investors eyeing a profit warning from Lucent. Weaker-than-expected sales growth from Dow stock Alcoa added to jitters about the second-quarter earnings reporting period, which has just begun.
Stock investors were further shaken by news of rush hour train bombings in India that killed more than 100 people.
But the market managed to erase most of its losses in the late afternoon, and ultimately turn higher thanks to a mix of bargain hunting and some upbeat news out of chip gear maker KLA Tencor (up $3.23 to $42.56, Charts), said Joseph Saluzzi, co-head of equity trading at Themis Trading.
"KLA came out with a good forecast and that helped the semiconductors a lot," said Saluzzi. "That sector has been dragging down the techs lately, so the recovery helped the rest of the tech sector."
With the broader tech sector having been hit hard recently, some investors may have also seen the morning's selloff as a good place to get back in to the market.
The chief executive of KLA-Tencor (up $3.23 to $42.56, Charts), speaking at a conference, said that the company will beat the top end of its second-quarter forecast of bookings growth of between nine and 11 percent. Shares jumped on the news.
On Monday, the semiconductor sector, as evidenced by the Philadelphia Semiconductor (Charts) sector index, hit a 52-week low, and the sector may have been ripe for a bounce back, Saluzzi added.
Eye on earnings
Despite the afternoon turnaround, concerns about the earnings remain in place and are not likely to ease until more companies have reported results, analysts say.
Second-quarter earnings are expected to grow about 12 percent this quarter, according to a consensus of analysts surveyed by tracking firm Thomson Financial. Should that number hold up, it would mark the 12th straight quarter of earnings growth of at least ten percent.
However, many of the early reports and previews have been less than stellar.
Dow stock Alcoa (down $1.63 to $31.78, Charts) unofficially kicked off the earnings reporting period on a down note late Monday. The aluminum maker reported higher quarterly earnings on revenue that missed expectations. Shares slumped 4.9 percent Tuesday.
The warning followed a number of recent technology sector disappointments, including a profit warning Monday from EMC (up $0.09 to $10.50, Charts), a computer data storage maker. Last week, chipmaker Advanced Micro Devices (up $0.47 to $22.98, Charts) issued a warning about its quarterly results.
Fears about higher inflation paired with slowing economic growth continued to hurt investor sentiment, as has been the case for weeks.
Rising oil, gas and gold prices added to the inflationary concerns, while in the Treasury market, the yield curve remained inverted. An inverted yield curve is an occurrence in the bond market that can imply slowing economic growth.
Stock investors are jittery about the earnings warnings, Alcoa and the run up in commodities, said Peter Cardillo, chief market analyst at S.W. Bach & Co.
However, he noted that "it's too early to determine how the earnings period is going to ultimately play out. Until the period gets in full gear, you're going to see the market struggling to find its way."
Dow component Pfizer (down $0.38 to $23.49, Charts) slipped more than two percent after an article in Business Week questioned whether the company's diabetes treatment Exubera is turning out to be as big a blockbuster as some had expected.
Internet service provider America Online expects to trim $1 billion of operating profit through 2009 under a proposed plan to offer the online service free of charge to some customers, according to a report in the Wall Street Journal.
But the paper said the company expects the growth of Internet ad revenue over that time will ultimately leave the company more profitable. AOL and CNNMoney.com are both units of Time Warner (Charts), the shares of which fell 2 percent.
Additionally, the rally in commodity prices boosted the underlying stocks. The Amex Gold Bugs (Charts) index added 2.8 percent.
Market breadth turned positive by the close. On the New York Stock Exchange, winners beat losers five to three as 1.57 billion shares changed hands. On the Nasdaq, advancers topped decliners by nine to seven on volume of around 2 billion shares.
Treasury prices rose, lowering the yield on the benchmark 10-year note to 5.08 percent from 5.13 percent late Monday and keeping it below that of the 2-year note. Bond prices and yields move in opposite directions.
The run up in Treasurys may have been a so-called flight-to-quality move in the wake of the unsure stock picture.
In currency trading, the dollar was little changed versus the yen and the euro.
Related: Today's hottest stocks