Big rally sends Dow to record high

NEW YORK (CNNMoney.com) -- Stocks rallied Tuesday, pushing the Dow Jones industrial average to another record close as investors welcomed upbeat news from Wal-Mart Stores and Intel, lower oil prices, and a big drop in a key inflation measure.

The Dow (up 86.13 to 12,218.01, Charts) jumped 0.7 percent, closing at a record for the 15th time since early October, when it first knocked out its old all-time high from 2000, near the end of the 1990s tech boom.

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The broader S&P 500 (up 8.80 to 1,393.22, Charts) index gained 0.6 percent, closing at its highest point since November 2000. The tech-fueled Nasdaq composite (up 24.28 to 2,430.66, Charts), meanwhile, added 1 percent and ended at its highest level since February 2001.

Stocks slipped in the morning as investors considered the day's economic news, as well as earnings from Wal-Mart Stores, Home Depot and others. But the tone improved in the afternoon, with a variety of sectors bouncing back.

The turnaround was impressive and a bit surprising, said Ron Kiddoo, chief investment officer at Cozad Asset Management. He said it reflected the market's resilience, with investors unwilling to dwell too long on any perceived negatives, like the morning's retail sales report or some of the day's earnings.

"We're seeing the same trend today we've been seeing lately, where stocks start off lower on whatever the bad news is, but turn it around by the afternoon," Kiddoo said.

He said that resilience was attributable to many of the factors that have supported stocks of late, including strong earnings and an economy that seems to be slowing, but not heading for a so-called "hard landing."

Since bottoming in July, stocks have been on the upswing. Year-to-date, the Dow is up 14 percent, the S&P 500 up 11.5 percent and the Nasdaq is up around 10 percent.

After the close of trade, Abercrombie & Fitch (Charts) reported third-quarter earnings that rose from a year earlier and met forecasts. The clothing retailer also gave a full-year earnings forecast in a range that sets the midpoint below analysts' estimates. Shares lost 4 percent in extended-hours trading.

On Wednesday, investors will look to the NY Empire State Index, a regional manufacturing report, due for release before the start of trading, and the minutes from the October Federal Reserve policy meeting, due in the afternoon.

The weekly oil inventories report will also be released Wednesday.

Tuesday kicked off a busy week for economic reports. The Producer Price index (PPI) fell a greater-than-expected 1.6 percent in October, the government reported Tuesday morning.

So-called "core" PPI, which measures inflation excluding volatile food and energy costs, fell 0.9 percent, surprising economists who thought it would rise 0.1 percent, on average. Core PPI rose 0.6 percent in September.

The decline in core PPI was the largest slump in more than 13 years and took the edge off any worries about inflationary pressure.

Retail sales fell 0.2 percent in October, the government said, mostly from lower gasoline prices. Sales fell 0.4 percent in the previous month. Economists surveyed by Briefing.com thought sales would fall 0.4 percent again.

Sales excluding autos fell a greater-than-expected 0.4 percent in October.

The larger picture that investors can draw from these two reports is modest consumer spending and moderate core inflation, said Joshua Shapiro, chief economist at Maria Fiorini Ramirez Inc.

"The reports suggest that things are moving in the way the Fed wants," he said. "Growth is slowing, but not slowing too rapidly and inflation pressures seem to be cooling."

The reports are consistent with the Federal Reserve keeping interest rates steady, Shapiro said, as board members have opted to do for the last three meetings following two years of rate hikes.

In response, prices in the inflation-sensitive Treasury bond market rallied, lowering the yield on the benchmark 10-year note to 4.57 percent from 4.61 percent late Monday. Bond prices and yields move in opposite directions.

In corporate news, Wal-Mart Stores (up $1.34 to $47.66, Charts) reported higher quarterly earnings that topped estimates, sending shares nearly 3 percent higher.

Target (up $1.40 to $59.16, Charts) reported higher quarterly earnings that beat forecasts on sales that rose from a year ago and met forecasts, sending shares higher.

Home Depot (up $1.56 to $37.96, Charts) reported quarterly earnings that slipped from a year earlier and missed analysts' projections, reflecting the impact of the slowdown in the housing market.

The home improvement retailer also cut its forecast for earnings and sales growth in the fiscal year. After sliding modestly in the morning, shares rebounded in the afternoon.

A variety of retailers rose, lifting the S&P Retail (Charts) index by 2.4 percent.

Chipmaker Intel (up $0.88 to $21.88, Charts) jumped over 4 percent after releasing its new quad-core chips ahead of rival AMD (up $0.14 to $21.34, Charts). The gain helped lift chipmakers and the computer hardware sector. AMD shares inched higher.

Shares of automakers rose after the conclusion of a meeting between President Bush and top executives from General Motors (up $0.42 to $35.51, Charts), Ford (down $0.07 to $8.80, Charts) and the U.S. arm of DaimlerChrysler (up $0.64 to $59.96, Charts).

Topics of discussion between the president and the executives included energy policy and the U.S. dollar.

Homebuilder D.R. Horton (up $2.12 to $24.50, Charts) reported quarterly earnings slumped amid a large decline in new home orders but the results topped analysts' estimates and shares surged.

A variety of homebuilders climbed, boosting the Dow Jones Home Construction (Charts) index by 6 percent.

After the close Monday, retailer Dillard's (up $6.38 to $35.59, Charts) reported improved quarterly earnings that topped estimates. Shares rallied Tuesday.

A variety of blue chip stocks rose, with 26 out of 30 Dow components rising.

Market breadth was positive. On the New York Stock Exchange, winners beat losers three to one on volume of around 1.71 billion shares. On the Nasdaq, advancers beat decliners by two to one on volume of 1.97 billion shares.

U.S. light crude oil for December delivery fell 30 cents to settle at $58.28 a barrel on the New York Mercantile Exchange.

COMEX gold fell 50 cents to settle at $625.50 an ounce.

In currency trading, the dollar fell versus the yen and against the euro.

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