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After The Close - Stocks took the high road today, despite ongoing uncertainties in Iraq and some tepid economic data. At the closing bell, the Dow Jones Industrial Average was up 27 points; the NASDAQ had gained 16 points; and the S&P 500 had tacked on four points. But the real star of the day was the small-cap Russell 2000 Index, which continued to bounce back from a selloff earlier this year. Market breadth affirmed the positive feelings, as the number of advancing issues easily topped decliners on both the Big Board and the NASDAQ.

Investors were able to put the threat of Iraq dissolving as a nation on the back burner today, even though not much good news is emanating from that country. But the feeling seems to be that at least the majority of Iraq’s oil supplies are not immediately imperiled. Oil prices have stopped rising this week as a result, buying time for traders to focus on other issues.

As for the economy, this morning’s data showed a housing market that, while not exactly picking up steam, seems to have enough strength left in it to keep from being worrisome.

Meantime, inflation, as measured by the Consumer Price Index, came in ahead of expectations, but was again not considered the beginning of a troublesome trend. In fact, a pickup in inflation is being welcomed in some quarters these days. That attitude is a far cry from days gone by, when inflation was seen as anywhere between a slow corroding force, like rust on a fender, to a raging inferno that could bring an economy to its knees in no time flat.

Nowadays, inflation is partly viewed by stock investors as a sign of a recovery in consumer demand for goods and services, after a long period of muted economic growth. The bond market did not take kindly to the faster-than-expected climb in the cost of living, though. The yield on the 10-year Treasury note rose to 2.65% from 2.60% as a consequence. The thinking is that the Federal Reserve may need to raise interest rates sooner rather than later if inflation trends pick up, which would be bad for bond prices.

Among the stock market’s various sectors, financial stocks did well, as the rise in bond yields offered hope that asset yields would follow suit.

Tomorrow brings the close of the Fed’s two-day policy meeting, with insights as to its latest views. Economic bellwether FedEx (FDX) is due to report earnings, as well. – Robert Mitkowski

At the time of this writing, the author did not have positions in any of the companies mentioned.

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12:00 PM EDT - The major U.S. equity indexes are not too far removed from the neutral line as we reach the midday hour on the East Coast, but there is a positive undertone to trading, which is good news for the bulls as volume has been strong thus far today. The small-cap stocks are showing much more strength than the large-cap issues, which may be an indication that the market wants to go higher, but is being held back by concerns about the situation in Iraq and the impact it will have on the world oil supplies. Overall, the spread between advancing and declining issues is clearly in favor of the former on the NASDAQ, but it is razor thin on the Big Board. The day has brought little news of note on earnings front, but we did receive a few significant reports on the business beat (more below) before the opening bell.

From a sector perspective, there is some mild leadership coming from the technology and industrial sectors. Within the tech space, the stocks of the software and semiconductor companies are trading higher, as well as shares of Netflix (NFLX). Conversely, we are seeing selling in the basic materials and energy groups. The energy stocks were on fire coming into today’s session, with oil prices higher on concerns about the unrest in the oil-rich Middle East. The homebuilding stocks on a somewhat disappointing report on housing starts and building permits are weaker today, already giving back most of yesterday’s gains; the homebuilders were higher yesterday on a jump in the homebuilder sentiment index.

We also are seeing some sector rotation in play today. Investors are showing a bit more appetite for risk, which is hurting the more-defensive consumer staples, healthcare, and utilities sectors. The S&P 500 Volatility Index (or VIX), also known as the “fear gauge,” is a bit lower as trading enters the second half of the session. In the same vein, the yield on the 10-year Treasury note, which moves in the opposite direction to the price, is currently up more than 1.5%.

As noted, we received some important news on the economy this morning. At best, the reports would be considered mixed. The news from the Commerce Department on the homebuilding market was a bit disappointing, as building permits and housing starts were both down on a sequential basis, but housing starts were up nicely year over year, and new residential activity in the all-important South region was strong. Meantime, the Labor Department reported that consumer prices rose by 0.4% in May, which was a bit higher than the consensus expectation, but the core-index was up a more modest 0.3%. The uptick in consumer pricing was definitely not enough to stoke inflation concerns, especially with last Friday’s report showing a retreat in producer (wholesale) prices for the same month.

Looking ahead to the second half, we would not be overly surprised if the major equity indexes continued to trade in a narrow band. Our sense is that investors—although volume is strong today—will be hesitant to make a big move ahead of the Federal Reserve’s statement tomorrow afternoon following the commencement of its two-day monetary policy meeting. The Federal Reserve’s monetary announcement can be a game changer for the market, but we are not expecting any big surprises from the central bank tomorrow. - William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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Stocks to Watch from The SurveyCorporate news appears to be much lighter today than yesterday, but there are some stocks to keep an eye on. On the earnings front, FactSet Research Systems (FDS), a provider of global financial and economic information, has reported May-period results that were in line with estimates. The company’s August-quarter outlook was also on par with investors’ expectations. Likewise, executive recruiter Korn/Ferry International (KFY) delivered April-period results that sat well with investors, who pushed the stock slightly higher in the premarket. 

Elsewhere, shares of Edwards Lifesciences (EW) are up nicely ahead of the bell, after the medical supplies company received FDA approval for the latest generation of its heart valve, SAPIEN XT. – Matthew E. Spencer

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

Before The Bell - A skittish stock market essentially marked time yesterday with the leading averages mostly higher in a session dominated by merger and acquisition news and continuing worries about the violent situation in Iraq. 

Helping stocks to cope rather well with the day was a better reading on industrial production and factory usage. To wit, production levels rose by a solid 0.6% last month, following a decline of half that magnitude in April. At the same time, the nation's factories were a bit busier, operating at 79.1% in May, versus 78.9% in April. The 79.1% reading was the second best of this year, being bettered only by March's 79.3% level.

All told, the Dow Jones Industrial Average rose by a scant five points, the Standard and Poor's 500 Index added a point and a half, and the tech-laden NASDAQ gained 10 points. The S&P Mid-Cap 400 was virtually unchanged, however, and the Dow Transports fell another 20 points, weighed down by concerns about recently inflated oil prices. The latter has come about principally as a result of the increased violence in strife-torn Iraq. The deteriorating situation in Ukraine has also increased the level of uncertainty in the world's financial markets.

All of this is in marked contrast to a week or so ago when the Dow was on the cusp of 17,000. At that time, this 30-stock blue-chip composite had come within a mere 30 points of that psychological level. The Standard and Poor's 500 Index, which had risen above 1,950, has also backtracked just a bit, but is still comfortably above 1,930.

Now, a new day starts and it will be a busy one with data just issued by the U.S. Commerce Department on housing starts and building permits, with both of these key metrics easing a bit more than forecast in May, following strong results in April. At the same time, the Labor Department posted its monthly survey on consumer prices. Here, the headline number showed an increase of 0.4% last month. That was twice the expectation. Moreover, the core rate of the CPI, which backs out the food and energy components from the aggregate mix, affirmed a gain of 0.3% in May. That, too, was a little greater increase than had been widely expected. Specifically, food prices rose by 0.5% last month, while energy costs jumped 0.9%. Overall, though, there were no huge surprises in the inflation results, nor in the housing summation, but there were some disappointments. We caution, however, that oil prices could again rise sharply in June should there be no retracement of the spike in energy costs over the balance of this month.

As to the markets around the world, stocks were somewhat lower in Asia overnight, but they have been rallying a bit in Europe so far this morning. As to our futures, they are lower ahead of the bell, weighed down by the weaker data in housing and the rise in consumer prices. But how the markets close over here today may well be influenced to a degree by the events overseas, where the tensions in Iraq appear to be easing just a trifle. Finally, the Federal Reserve will be starting its two-day FOMC meeting this morning, where no change in interest rates is expected, but a further tapering in the central bank's bond purchases may well be forthcoming. - Harvey S. Katz    

At the time of this article's writing, the author did not have positions in any of the companies mentioned.