Stocks snapped a three-day losing streak Wednesday as H-P earnings inspired investors to think long term.
The Dow Jones Industrial Average gained more than 90 points, even as oil danced over and back across the $101 mark. The Nasdaq and S&P 500 index also finished higher.
It's been a topsy-turvy day, with stocks sliding at the open after the CPI report, then rebounding in the afternoon as investors toggled their focus to H-P's better-than-expected results. The telecom sector, however, remained firmly in the red amid concerns about a price war.
"The Dow is going up because people are seeing through the rest of the year," Brett D'arcy, director of investments at CBIZ Financial Solutions, told CNBC. After H-P's encouraging results, investors are realizing things aren't all bad, he said.
But what about that pesky $100 oil?
"Oil in my opinion is a speculative bubble," D'arcy said, adding that there really isn't much relation between oil and the stock market.
Earlier, a higher-than-expected CPI report fanned concerns about inflation and, subsequently, the Fed's next move. Consumer prices rose 0.4 percent in January, while core inflation rose 0.3 percent. The annual core rate of inflation is now 2.5 percent, outside the Fed's comfort zone.
In other economic news, housing starts rose 0.8 percent last month, while permits, a gauge of future building activity, fell to their lowest rate in more than 16 years. U.S. mortgage applications plunged last week.
Just as investors get focused on the big picture, wouldn't you know it, people start throwing the R word around. The U.S. economy is in a recession -- albeit a mild one -- UBS economists said in a research note. "It's not coming, it's here," they said, noting that weak consumer spending has compounded turbulence in the housing and credit markets.
Then, in walks the Fed's William Poole, president of the St. Louis branch, who gently says that the U.S. will probably avoid recession but that the Fed can't ignore inflation.
Then, in walks the whole Fed.
According to minutes from the last meeting, after policy makers cut interest rates by 1.25 percentage points in January, they still worried about further weakness and that economic stimulus wouldn't arrive in time to avert a recession. The market interpreted that as a signal that the Fed would remain aggressive in cutting interest rates. An interesting detail in the minutes -- especially given today's CPI report -- is that the Fed ratcheted back its assessment of inflationary risk, saying a majority of policy makers see risks to the inflation outlook as "broadly balanced." (Read the text of the minutes.)
Telecom stocks VerizonAT&T were among the Dow's top decliners after the companies, along with T-Mobile, unveiled $99.99 flat-rate plans for unlimited calls. Meanwhile, No. 3 U.S. mobile-service provider Sprint Nextel is expected to counterpunch with a $60 flat-rate plan, analysts said Wednesday.
Credit Suisse cut its rating on the telecom-services sector to "market weight" from "overweight" amid these pricing concerns and slashed its rating on both AT&T and Verizon to "neutral" from "outperform." AT&T was also downgraded by Baird.
On the Nasdaq, shares of mobile-phone chip maker Qualcomm led advancers.
General Motors also dragged on the Dow following news that GMAC, the auto-finance unit GM spun off in 2006 and still owns 49 percent of, plans to eliminate 930 jobs or 15 percent of its staff. Restructuring charges will be spread over 2008, mostly in the second half.
J.C. Penney gained more than 3 percent following an analyst recommendation and ahead of the retail giant's earnings on Thursday. Analysts expect earnings of $1.74 a share, according to a consensus estimate from Thomson Financial.
Citi Investment Research analyst Deborah Weinswig, who has a "buy" rating on Penney, said she expects the stock to go higher in the coming months due to the launch of the American Living clothing and home furnishings line, which could hit a younger, hipper demographic. She also said Penney could delay store openings for the next year or two, which would free up some cash.
Hewlett-Packard, the Dow's top gainer, jumped 8 percent after the computer and printer maker reported late Tuesday that its net jumped 38 percent to $2.13 billion, or 80 cents a share, in the quarter ended Jan. 31, amid strong sales from its PC unit and overseas. Excluding items, H-P earned 86 cents a share, surpassing the 81 cents a share analysts had expected. The Palo Alto, Calif., company also raised its fiscal 2008 forecast.
Shares of Crocs, which also reported late Tuesday, tumbled more than 15 percent after the maker of colorful plastic shoes reported a huge jump in profit but issued a bleak outlook for 2008.
That seems to be a theme on Wall Street today: No matter what happened in their quarterly report, if a company faces a challenging quarter and year ahead, investors hammered the stock. Among them were solar-energy company Suntech Power, organic grocery chain Whole Foods, diet company NutriSystem, surgical-products maker Arthrocare and hospital operator Kindred Healthcare.
Energy stocks, including Dow components ExxonMobil and Chevron, advanced after oil tested the $100 mark again, then kept going and crossed the $101 mark in intraday trading.
Citigroup rose amid news that the bank plans to sell or close some units in Mexico, Japan and the U.K. amid consumer weakness and a revitalized push to focus on higher-margin businesses, according to a report in the Wall Street Journal.
KKR Financial Holdings slipped after the listed affiliate of private-equity group Kohlberg Kravis Roberts delayed repayment of debt backed by mortgage securities for the second time.
The Financial Times said in a report on its Web site that Tuesday's move by KKR financial holdings followed a $270 million bailout of the leveraged investment vehicle last September, which saw founders Henry Kravis and George Roberts personally inject cash.
Medtronic caught a break on patient lawsuits after the Supreme Court ruled in the company's favor, saying that federal regulations of medical devices are enough and should prevent patients from suing manufacturers over faulty devices.
|Thu: Jobless claims, Philly Fed report, J.C. Penney earnings|
|Wild Card: Delta-Northwest merger may be announced|
Send comments to Cindy Perman at email@example.com.