Early gains sputter in light trading
NEW YORK » A sharp jump in productivity, the biggest surge in two years, lifted stocks yesterday, but early gains sputtered, leaving the market up only slightly at the close.
Investors welcomed word from the Labor Department that the nation's productivity rose 4.7 percent over the summer. That helped push labor costs lower, easing fears of inflation on Wall Street.
Despite the advance, trading volume was light, leading analysts to question whether the market could climb substantially higher during the next few weeks.
"There's still an element of the self-fulfilling prophecy here, in that you're seeing people jump into a rally just because it's the end of the year and we're supposed to have a rally," said Chris Johnson, manager of quantitative analysis at Schaeffer's Investment Research. "I wouldn't be surprised if we're lollygagging around here until the end of the year."
The market followed a pattern it has repeated many times since its October low: Gains early in the day were eroded by sharp selling before the close.
The Dow Jones industrial average rose 21.85, or 0.2 percent, to 10,856.86 after being up 101 points in earlier trading. The Dow lost 42.50 on Monday.
Broader stock indicators also advanced. The Standard & Poor's 500 index rose 1.61, or 0.13 percent, to 1,263.70, and the Nasdaq composite index rose 3.12, or 0.14 percent, to 2,260.76.
Bonds came back after losses in the previous session, with the yield on the 10-year Treasury note falling to 4.48 percent from 4.57 percent late Monday. The dollar was up against most major currencies, while gold prices rose to a 25-year high in European trading.
Oil prices rose. A barrel of light crude settled at $59.94, up 3 cents, on the New York Mercantile Exchange.
Jon Brorson, head of growth equities at Neuberger Berman in Chicago, has been saying for a long time that blue chip stocks look cheap. "I'm hearing everyone and their mother talk about that now," he said.
Large-cap stocks rallied Tuesday, but small cap stocks have outperformed their larger peers for 7 years, and continued to do so since the market's October lows, Brorson said.
"Small caps are still sort of in the vanguard here," he said.
That said, many large-cap stocks had a strong day. Wal-Mart Stores Inc. rose 48 cents to $47.62; General Motors Corp. rose 26 cents to $22.39 and the Walt Disney Co. rose 51 cents to $25.52.