Early Wall Street rally ends with a whimper
NEW YORK » Wall Street's attempt at a rally fizzled yesterday, with the major indexes rising in response to a Middle East cease-fire and then giving up most of their gains later in the day.
Investors initially saw the cease-fire between Israel and Lebanon as a buying opportunity after last week's losses, and the Dow Jones industrial average surged as much as 115 points. Light trading volumes, however, pointed to a lack of depth to the buying, and stocks retreated.
Analysts had warned that the rally could be short-lived due to a pair of important inflation reports due later in the week: the U.S. Labor Department's producer price index today and the consumer price index tomorrow.
With the Federal Reserve warning the markets last week that inflation remains a concern, stocks could revert to the volatility of recent weeks if incoming economic data shows rising prices on the wholesale or consumer levels.
"We're up now on the cease-fire and oil prices, but it's hard to be an optimist right now, at least in the short term, because of the uncertainty over the economy and rates and the Fed," said Jay Suskind, head trader at Ryan Beck & Co. "As the week wears on, everybody's going to be focusing on the economic numbers and the debate over inflation will come back again."
Crude futures fell as traders saw less risk of a supply disruption in the Middle East after the United Nations-mandated cease-fire took effect. A barrel of light crude settled at $73.53, down 82 cents, on the New York Mercantile Exchange.
According to preliminary calculations, the Dow rose 9.84, or 0.09 percent, to 11,097.87. The Dow lost 1.36 percent last week. Broader stock indicators also rose. The Standard & Poor's 500 index added 1.47, or 0.12 percent, to 1,268.21, and the Nasdaq composite index gained 11.33, or 0.55 percent, to 2,069.04.
The Russell 2000 index of smaller companies was up 2.69, or 0.4 percent, at 681.73.
Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 5.00 percent from 4.97 percent late Friday. The dollar dropped against other major currencies, while gold prices fell.
While advancing issues outnumbered decliners by nearly 9 to 7 on the New York Stock Exchange, preliminary consolidated volume remained light, totaling 2.18 billion shares, compared with 2.06 billion traded Friday.
"You get this spike up on light volume, you just don't have staying power," said Scott Wren, equity strategist for A.G. Edwards & Sons. "There's nothing more to this rally than relief over the Middle East, and you've got the economic data later in the week. I just don't think you can put too much into what's happening today."