Stocks edge higher as caution creeps in

NEW YORK -- Stocks finished a choppy day of trading Wednesday mostly higher following positive reports on home sales and factory orders.

The Dow Jones industrials rose for the seventh-consecutive session, marking another high for the year. All the major stock indicators finished in positive territory, but the gains were minuscule.

An increasingly cautious mood has gripped Wall Street in recent days, following a period of fervid buying this summer that sent the broad market up more than 50% since early March. While economic data are improving, investors are now questioning whether the market can go much higher without clear evidence of economic growth.

"The general consensus seems as though the market is ripe for some sort of pullback at some point," says Andrew Frankel, co-president of Stuart Frankel & Co. "We seem to be floating up on air."

With trading volume and news flow tapering down amid Wall Street's annual summer slowdown, analysts say there are few near-term catalysts that could spur the market higher.

Stocks seesawed without clear direction Wednesday despite a Commerce Department report that said new home sales rose 9.6% in July for the fourth monthly gain in a row. Sales rose to a 433,000 annual pace, the strongest since September and well above the 390,000 figure economists expected (story, 3B).

The latest sign of improvement in housing didn't do much to impress investors, who have already factored in a recovery in the long-suffering home industry. Some of the latest gains can be attributed to a federal tax credit for first-time home buyers currently set to expire in November. The industry has been pressing Congress to extend it.

A separate Commerce Department report showed that orders for goods expected to last at least three years rose 4.9% in July – the biggest jump in two years and more than the 3% increase economists had expected.

However, the overall increase was driven by a surge in orders for transportation equipment, which benefited from the government's recently expired cash-for-clunkers program, which drove thousands of people to trade in older cars for new ones. Excluding transportation goods, orders rose 0.8%, just short of analysts' expectations.