US Market rallies for second consecutive day

Stocks rise in spite of higher crude, above expected inflation figures and disappointing earning reports

US stocks rallied for the second consecutive day today, Thursday, 14 June, 2007. Investors were thrilled when bond yields did not rise much even as producer price index for May went up beyond expectation. Stocks ended higher in spite of crude settling at $67.65/bbl though this gave Exxon Mobil shares a good boost.

Total PPI rose a larger than expected 0.9% in May boosted by a big 4.1% increase in energy costs. But the core rate (excluding food and energy) rose 0.2%. The yield on the 10-year note today closed slightly higher at 5.21%

Twenty-four out of the 30 Dow stocks closed higher for the day. The Dow Jones Industrial Average closed higher by 71.38 points at 13553.73. Nasdaq rose 17.1 points to close at 2599.41 and S&P 500 went up by 7.3 points to close at 1522.97.

GM, Caterpillar and Exxon Mobil were the major Dow winners today. Du-Pont, Wal-Mart, AIG and Merck remained the four Dow laggards.

On the earnings front, after Lehman Brothers kicked off earlier this week, Goldman Scahs and Bear Sterns reported their Q2 earnings today. Goldman Sachs handily beat analysts' expectations. However, given Goldman's first quarter results, investors were disappointed with the paltry 1% y-o-y rise in Q2 profits. Bear Stearns missed expectations. While Goldman shares dropped almost 3.5%, Bear Sterns was up marginally.

With today’s gain, Dow is up 258 points over two days, its biggest such advance since last July. But it is still about 120 points below the record close it hit on 4 June, 2007.

GM gains 4.7% on news of “deal” with United Auto Workers

When market opened in the morning, bond yields coming off their highs helped equities gain some traction. The indices extended their reach to the upside as the strength across the board in Technology acted as a source of notable support. A 3.5% advance in Intel shares gave semiconductors a lift. Financials sector also provided some influential leadership.

GM shares gained gained 4.7%. It was reported that Delphi and former parent GM are "very close" to reaching a deal with the United Auto Workers that would provide a cash payout to Delphi workers in exchange for lower hourly wages.

Bonds earlier advanced, sending yields lower, as yields in Europe seemed to stabilize in the wake of tame eurozone consumer prices. PPI rising a bigger-than-expected 0.9% in May failed to lift yields further. After trading higher earlier, the bond finished down 4/32 at 94 16/32, while its yield, which moves inversely, rose to 5.216%.

Of the eight sectors attracting buyers and providing a floor of support today, Energy paced the way.

Traders to focus on tomorrow’s CPI report

Crude oil futures rose today at their highest levels since September 2006 and gasoline futures finished near a two-week high. Violence in the oil-rich Middle East, particularly with Hamas fighters reportedly seizing control of almost all of the Gaza Strip, contributed to oil's rally. Yesterday’s weekly inventory report also contributed to some extent.

Crude-oil futures for light sweet crude for July delivery closed at $67.65/barrel (higher by $1.39/barrel or 2.1%) on the New York Mercantile Exchange. July reformulated gasoline gained 6.94 cents (3.2%) to close at $2.2247 a gallon. Natural gas for July delivery soared 20 cents (2.6%) to $7.808 per million British thermal units.

Trading volumes showed 1.4 billion shares trading on the New York Stock Exchange and 1.9 billion trading on the Nasdaq stock market. Advancing issues topped decliners by 21 to 11 on the NYSE and by 17 to 11 on the Nasdaq.

Tomorrow, traders will focus on the CPI report, given its influence on the market's outlook for the economy. Other than that, before market opens will be the NY Empire State Index, Q1 Current Account Deficit and Industrial Production. A preliminary read on sentiment, compiled by the University of Michigan, will be released at 10:00 ET.