Stocks slip as oil rises
NEW YORK -- Investors bided their time Wednesday, encouraged by rising commodity prices but hesitant about making big moves ahead of regional economic data.
The major stock indexes slipped modestly Wednesday after oil touched a new high for 2009 above $71 a barrel.
Commodity prices have been rising in recent days, reflecting hopes that economic activity will improve and boost the appetite for basic materials. Declines in the dollar have also pushed commodity prices higher. The dollar was falling again Wednesday morning, while gold prices rose.
Stocks of most airlines, homebuilders and retailers were lower. The commodity rally has led some investors to fear that the higher prices for materials could be passed along to consumers, causing inflation and potentially crimping consumer demand.
The Dow Jones industrial average has been waffling around 8,700 this month, just below where it started the year, after its massive three-month-long rebound from 12-year lows reached in early March.
It's a good sign the market is holding up after its rally," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. But "we're going to need to have more positive news on the economic front to make another push higher."
Asian markets rose as inflation fears eased in China, where a new report showed prices fell in May for a fourth straight month. That could give the Chinese government more room to carry out a major stimulus plan.
The upward march of oil prices and other commodities lifted shares of energy and basic materials companies.
"It's peculiar — higher oil usually means a better stock market and a better economy," Detrick said. "But there's a fine line. Last year, there was a breaking point. The question is, what is that now?"
Last year, oil prices surged to nearly $150 a barrel before plunging sharply.
Investors will get insight on how the economy is faring Wednesday afternoon when the Federal Reserve releases its beige book report, which measures economic activity by region. The report is due at 2 p.m. Eastern.
The market will likely look toward the positives out of the report, and could overlook weak spots, said Maury Fertig, chief investment officer at Relative Value Partners in Northbrook, Ill.
"The market looks toward areas of improvement," Fertig said, noting the change in investors' psychology over the past few months after it had been focusing on negative news to drive the market lower.
In corporate news, investors are cheering comments from Home Depot, which said its full-year earnings may come in better than forecast, sending its shares up 39 cents to $24.74. Home Depot said earnings from continuing operations should be flat to down 7%, better than its previous forecast of a 7% drop.
Bond prices fell ahead of an auction of $19 billion in 10-year Treasury notes. There was strong demand for the government's three-year note sale Tuesday, providing some reassurance that interest rates might not creep high enough to hinder an economic recovery.
The yield on the benchmark 10-year Treasury note rose to 3.89% from 3.86% late Tuesday. The yield on the three-month T-bill rose to 0.18% from 0.17% late Tuesday.
In other trading, the Russell 2000 index of smaller companies fell 6.65, or 1.3%, to 521.28.
About seven stocks fell for every six stocks that rose on the New York Stock Exchange, where volume came to 222.9 million shares compared with 213.4 million shares traded at the same point Tuesday.
Overseas, Japan's Nikkei stock average rose 2.1%. In afternoon trading, Britain's FTSE 100 gained 2.2%, Germany's DAX index rose 2.4%, and France's CAC-40 rose 2.2%.